Emini and Forex Trading Update:
Thursday August 13, 2020
I will update again at the end of the day.
Pre-Open market analysis
Institutions mostly watch the cash index and are more interested in the close than the high. The Emini on Tuesday broke to a new high, but the high of the cash index did not reach the highest close from February.
Yesterday’s high in the cash index finally went above below the all-time highest close from February, but only by about a point. The bulls might try again today to get a new all-time closing high in the cash index.
But this is now 2 days where the cash index reversed down around the February close. That is a micro double top, and there is also a possible double top with the February high.
How much higher can this rally go? Probably not much. The extreme streak of 9 consecutive bull bars ended on Tuesday. That is an unusually overdone buy climax. There were similar streaks in January 2018 and this June. Both led to about 10% corrections.
Traders expect the Emini to soon go sideways to down for a week or two. There is a 40% chance of a 10% pullback beginning this month. That would be similar to the selloffs after the streaks of consecutive bull bars in January 2018 and June 2020.
Overnight Emini Globex trading
The Emini is up 1 point in the Globex session. The bulls will try to get the cash index today to close above February’s all-time highest close.
Since the Emini is derived from the cash index, traders expect the Emini to try to rally as well. But the 9 consecutive bull bars is an important sign of an extremely overdone rally. Most traders are unaware of the 9 day factor, but they sense that the rally has been extreme. Even if the bulls break strongly to a new high, the rally will probably not go much higher before there is a test down to the 3,000 Big Round Number, which is about 10% down.
Yesterday spent most of its time going sideways. That increases the chance of more trading range price action today.
Tomorrow is Friday and traders are starting to think about the weekly chart. Will the week become another big bull bar, like the past 2 weeks? Unlikely, but the bulls still want it to close on the high. The bears want it to close below the open so that this week will be a bear bar.
Yesterday’s setups
Here are several reasonable stop entry setups from yesterday. I show each buy entry with a green rectangle and each sell entry with a red rectangle. I rarely also show limit order entries and entries on the close of bars. I do not want the lines to be distracting. If they are longer, I make them dotted. But, they have to be visible, so I make the shorter ones solid. Buyers of the Brooks Trading Course and Encyclopedia of Chart Patterns have access to a much more detailed explanation of the swing trades for each day (see Online Course/BTC Daily Setups).
My goal with these charts is to present an Always In perspective. If a trader was trying to be Always In or nearly Always In a position all day, and he was not currently in the market, these entries would be logical times for him to enter.
If the risk is too big for your account, you should wait for trades with less risk or trade an alternative market like the Micro Emini.
EURUSD Forex market trading strategies
The EURUSD Forex market on the daily chart has been sideways at resistance after a buy climax. Traders are deciding whether the bull trend should resume from the double bottom bull flag, or if the pullback will continue down from the small double top.
A trading range always has both a reasonable buy and sell setup. This is a Breakout Mode situation. Traders know that there is a 50% chance of a successful bull breakout and a 50% chance of a successful bear breakout. Furthermore, they know that there is a 50% chance that the 1st attempt will fail.
Finally, they believe that a measured move up or down will be followed by a reversal back to the trading range. Since the bull trend has been strong, a selloff down to the breakout point of the June 10 high will still be a pullback. Traders would expect a test back up.
Also, a trading range late in a bull trend is usually the Final Bull Flag. Therefore, a measured move up will probably come back down to the trading range.
Yesterday was a buy signal bar for a double bottom bull flag. But the prominent tail on top of the candlestick and the bar not closing above Tuesday’s high make it a low probability buy signal bar.
Overnight EURUSD Forex trading
The 5 minute chart of the EURUSD Forex market broke above yesterday’s high, which triggered a High 1 bull flag buy signal bar on the daily chart. It has tried several to break far above but is has been failing. The rally is a wedge and it is evolving into a trading range. Day traders have been scalping up and down for 10 – 20 pips all night. There is no sign that this is about to end.
Since the buy setup on the daily chart was weak, today will probably not rally far above yesterday’s high. Also, the EURUSD is in the middle of a 3 week range on the daily chart. Trader prefer to sell higher in a trading range. Also, yesterday was a bull bar at the bottom of the range. Finally, the EURUSD rallied, albeit weakly, overnight. These factors make a big bear day unlikely.
The bulls want today to close above yesterday’s high. That would increase the chance of at least slightly higher prices tomorrow. The bears want today to close on its low. That is unlikely. At a minimum, they want it to close below yesterday’s high and preferably below the midpoint.
Day traders expect today to continue in a trading range around yesterday’s high.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
Here are several reasonable stop entry setups for today. I show each buy entry with a green rectangle and each sell entry with a red rectangle. I rarely also show limit order entries and entries on the close of bars. I do not want the lines to be distracting. If they are longer, I make them dotted. But, they have to be visible, so I make the shorter ones solid. Buyers of the Brooks Trading Course and Encyclopedia of Chart Patterns have access to a much more detailed explanation of the swing trades for each day (see Online Course/BTC Daily Setups).
My goal with these charts is to present an Always In perspective. If a trader was trying to be Always In or nearly Always In a position all day, and he was not currently in the market, these entries would be logical times for him to enter.
If the risk is too big for your account, you should wait for trades with less risk or trade an alternative market like the Micro Emini.
End of day summary
The cash index again tested just above the February all time highest close, and then the markets reversed. The Emini fell to a new low. But the bars became big and there were many reversals. Today was a trending trading range day. It closed around the open and formed a doji inside bar on the daily chart.
The cash index is controlling the market right now. The bulls want a new all-time high close. As long as the Emini does not selloff strongly in the next few days, the cash index should make a new all-time high close. Remember, the institutions are only interested in the closes on the cash index.
Tomorrow is Friday so weekly support and resistance can be important. The bulls want the week to close near its high. They also want the cash index to close at a new all-time high. A strong close this week increases the chance of at least slightly higher prices next week.
It is important to remember that the Emini will probably begin a move down to 3,000 this month after the 9 consecutive bull bars.
See the weekly update for a discussion of the price action on the weekly chart and for what to expect going into next week.
Trading Room
Traders can see the end of the day bar-by-bar price action report by signing up for free at BrooksPriceAction.com. I talk about the detailed S&P Emini futures price action real-time throughout the day in the BrooksPriceAction.com trading room. We offer a 2 day free trial.
Charts use Pacific Standard Time
When I mention time, it is USA Pacific Standard Time (the Emini day session opens at 6:30 am PST, and closes at 1:15 pm PST). You can read background information on the intraday market reports on the Market Update page.
