Emini and Forex Trading Update:
Thursday February 27, 2020
I will update again at the end of the day.
Pre-Open market analysis
After 2 huge days down, yesterday was a weaker bear trend day. There was a wedge bottom on the 5 minute chart. But, instead of reversing up, the Emini went sideways. That is a sign that the bears might not yet be ready to take some profits. It made lower prices likely today.
The selloff continued overnight and today will probably open with a big gap down. The Emini was near a 10% correction overnight. That is a magnet just below the Globex low.
February is an extremely big outside down month. There are only 2 trading days remaining. Traders will fight over how the candlestick will look on the monthly chart when it closes tomorrow. The bears would like the month to close on its low. That would increase the chance of lower prices in March.
The bulls, however, are hoping to see some short covering before tomorrow’s close. If they do, they, too, will buy, looking for at least a 1 – 3 day bounce.
Because the selloff has been extreme, the bounce could be extreme as well. The bulls would like to see strong short covering begin today or tomorrow because February would then close above its low on the monthly chart. That would reduce the bearishness going into March.
Overnight Emini Globex trading
The Emini sold off early in the Globex session and then entered a trading range. Since it is down 43 points, today will gap down when the day session opens.
A big gap down means that the Emini will be far below the 20 bar EMA. Day traders do not like to sell far below the average price. Consequently, when there is a big gap down, there is only a 20% chance of a strong bear trend from the open.
Instead, traders expect a trading range open for the first hour or two. By going sideways, the Emini will get closer to the average price. At that point, traders will look for either a double bottom or wedge bottom to buy for a swing up, or a wedge rally or double top near the EMA for a swing down.
Normally, a trading range open reduces the chance of a huge trend day up or down. However, what has been going on this week is not normal. Day traders will be prepared for a surprisingly big trend day up or down. With the daily chart as oversold as it is, if there is a big trend, up is more likely. But it is important to be ready for anything.
Finally, with the bars and swings as big as they are, day traders need to trade small position sizes. For example, if many of the bars on the 5 minute chart are 15 – 20 points tall, a day trader with less than a $50,000 account should either trade micro Eminis, trade some other market like the SPY or QQQ, or wait for the bars to get smaller.
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. 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.
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 daily chart of the EURUSD Forex market has been reversing up from a test of the 2017 gap. Last week’s low was 1 tick above the bottom of the gap.
Today’s bar is surprisingly big. It makes it likely that a 2 – 3 week short covering rally is underway. The bulls are now testing the bottom of the 4 month trading range.
Because the momentum up is strong, this rally might reach the January 31 sell climax high before there is more than a 2 – 3 day pullback. Traders expect sideways to up for at least another week or two.
When a rally is as strong as this, there is usually at least a small 2nd leg up after the 1st reversal down. That reversal usually lasts only a day or two. Therefore, the 1st reversal down will probably be minor.
The bears will need at least a micro double top before they can get more than a week of selling. Now that the EURUSD is breaking strongly above the October low, that low will be support again.
Overnight EURUSD Forex trading
The 5 minute chart of the EURUSD Forex market has rallied strongly in a bull channel overnight. Day traders have been buying for scalps and for a swing up.
At some point, the rally will stall and evolve into a trading range. Once there has been a 20 – 30 pip pullback, bear day traders will look for shorts. However, they will only scalp.
Traders expect the daily chart to work sideways to up for at least another week. Therefore, day traders will expect more buying than selling opportunities. Also, they will aggressively buy the 1st 50 – 100 pip pullback.
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. 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.
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 Emini opened today almost exactly at a 10% correction down from the high. It sold off to just below the top of the 2 year trading range and just above 3000. The opening low was also at a measured move down from the 2 month double top. After a strong rally to near yesterday’s low, it reversed back to close at the low of the day far below 3000.
This selloff is a possible start of a much bigger correction. I have been saying that I think the odds favor a recession in the fall. The stock market often enters a bear market before a recession. This is a good candidate for a 20 – 30% selloff.
Tomorrow is the final trading day of the month. The bears want February to close on its low. That would increase the chance of lower prices in March. The bulls will try to create a rally tomorrow to weaken the bearishness of the monthly candlestick.
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.
The S&P spent 6 months between 2800 and 3000 going back and forth across 2900 multiple times. It will be interesting to see if that trading range now becomes support, which you would expect to see in a “normal” market, or if something far more unusual is unfolding.
I will write a detailed review of what I think is likely this weekend.