Emini and Forex Trading Update:
Tuesday May 12, 2020
I will update again at the end of the day.
Pre-Open market analysis
Yesterday was an outside up day, which is a sign of strong bulls. The key price is the April high. The bulls will probably break above it this week and maybe today. That would trigger a monthly High 1 buy signal. It would also run the stops on the bears who sold the wedge top on the daily chart.
Traders pay attention to simple moving averages. The 100, 150, and 200 day moving averages are just above the April high. Also, the March 3 lower high was the start of the March parabolic wedge. Its high is an additional target above.
However, the February-March selloff was exceptionally strong. Consequently, the Emini has only a 30% chance of a new high this year. Bu despite the growing buy climax, there is no strong reversal down yet.
Possible double top with top of wedge
The bears want a double top with the top of the wedge on the daily chart. That is the April 20 high of 2947.25, which is about 15 points above the current Globex price.
Double tops are rarely perfect. The 2nd high is typically a little higher or lower than the first. There is currently less than a 50% chance of a quick, strong reversal down from the April 20 top of the daily wedge. The rally will probably continue to 3000 and the daily moving averages before the bears will try again.
Overnight Emini Globex trading
The Emini is up 10 points in the Globex session. There are several strong magnets above and the bull trend has been strong. Traders expect higher prices. That increases the chance of bull trends on the 5 minute chart.
It is important to note that most days over the past month have had at least one 2 hour rally and one 2 hour selloff. Consequently, even though the bull trend has been strong on the daily chart, day traders are still expecting swings in both directions.
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 (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 is near the bottom of a month-long trading range. That usually leads to a reversal up. This is especially true when there are bull bars closing near their high. April 24 and May 7 are 2 examples.
Today might be another, especially if it closes above yesterday’s high. It is already an outside up bar, and a close above yesterday’s high would be an additional sign of strong bulls.
Every trading range always has both a reasonable buy and sell signal. The bears have a double top with the April 15 and May 1 highs. The May 7 low is the neckline. If the EURUSD breaks below that price, it will trigger the double top. The bears would then look for a measured move down from there.
The bulls have a head and shoulders bottom. It will trigger if there is a rally to above the May 1 high. That double top is the neckline. If the bulls get their breakout, they will look for a measured move up.
The EURUSD is still in a trading range
Legs in trading ranges reverse much more often than they continue into trends. The EURUSD is now at the bottom of a month-long trading range. A reversal up for 2 – 3 weeks is more likely than a bear breakout.
But until there is a breakout, the chart is still in Breakout Mode. That means the probability can never be too far from 50-50 for the bulls or bears.
The bulls currently have about a 55% chance of a rally to the top of the range. The probability will go up if they get a couple big bull bars this week.
Overnight EURUSD Forex trading
The 5 minute chart of the EURUSD Forex market traded below yesterday’s low and reversed up to above yesterday’s high. Today is an outside up day, which is a sign of strong bulls. The location at the bottom of a month-long trading range is good for the bulls. Traders are wondering if today is the start of a 2 – 3 week rally.
The bulls want today to close near its high and above yesterday’s high. That would indicate buying pressure and it will attract more buyers. It would increase the chance that a rally has begun on the daily chart.
The bulls have already accomplished their goal of creating an outside up day. They do not need the EURUSD to go any higher today. That reduces the chance of a big bull trend from here today.
But they still want today to close above yesterday’s high and near today’s high. Consequently, they will buy 20 pip selloffs today.
The bears always want the opposite of the bulls. But the overnight bull channel has been tight. That makes it very difficult for the bears to make money shorting. They need to stop the bull trend and begin a trading range.
That will probably happen at some point. If there is a 30 pip selloff, the day traders will begin to sell rallies for scalps,in addition to buying pullbacks. Until they, it will be easier to make money buying pullbacks.
An outside up day has a 20% chance of a reversal back down to below yesterday’s low. If there is a strong reversal down today, day traders will consider that possibility.
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 (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 Emini sold off on the open. It then entered a trading range for a few hours. The bears got strong trend resumption down for the 2nd half of the day.
Yesterday was an outside up day and today was a huge outside down day. This is an oo (outside-outside) pattern, which is rare on the daily chart. Today is therefore both a buy and sell signal bar for tomorrow.
If tomorrow trades below today’s low, it would trigger a double top sell signal with the wedge top. The bears are hoping that this is the end of the 8 week rally. They expect a test of 2600 in May or June. Today could be the start.
The 7 week rally is strong. Also, there are several magnets above. These include the 3 moving averages on the daily chart, the 3,000 Big Round Number, and the April high. Unless tomorrow is a strong bear day, many traders will expect the Emini to reach the targets above.
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.
Why would today be considered a buy signal bar on the daily chart, when it’s a huge bear trend bar closing on its low? Is it only because of the OO pattern, and if so, what is the logic behind that pattern? Thanks
An oo pattern is an expanding triangle on a smaller time frame. A triangle, like all trading ranges, is a Breakout Mode pattern. That means it is arguably a buy above and a sell above.
We don’t yet know if the Emini will reverse up later this week. It has not yet clearly broken below the 3 week small trading range.
As you know, I think that the Emini is going to test 2600 in May or June. Today is a good candidate for the start.
But today is part of a triangle. There is no breakout yet. At the moment, there is only a 55% chance that the selloff has begun. There is still a 45% chance that today is just a pullback in a 7 week bull trend. Traders need more information.
I always assume that the opposite of what is apparent will happen at least 40% of the time. Why? Because that is the truth.
Thank you, it makes sense now when i realised it’s actually an expanding triangle. It doesn’t look like a great sell signal either, just couldn’t figure out why would anyone see today as a buy signal.
On the 1hr it does point very well to head and shoulders, what are the chances we skip 3k and just trail down to the 2600 target? Such a sell off today from the right shoulder does support the argument?
A top is never clear until it is halfway to its goal. My general rule is that a good looking top has a 40% chance of leading to a measured move down.
Traders are still deciding if the Emini has to get to 3000 before 2600. We will find out over the next week or so.
finally…
Al: are you still holding the short position you built in late April?
Yes, and I will add to it around 3000 if the Emini gets there.