Emini and Forex Trading Update:
Friday February 21, 2020
I will update again at the end of the day.
Pre-Open market analysis
The Emini yesterday had a surprisingly strong selloff. After the sell climax, it rallied in a bull channel and closed around the open of the week. This week currently a doji bar on the weekly chart.
Since today is Friday, weekly support and resistance are important. The 2 nearest targets are the open and high of the week. If the Emini is within 10 points of either in the final hour, it might get drawn to the magnet.
I have mentioned many times over the past 2 weeks that the 3 week rally was probably a leg in a trading range that began at Christmas. Furthermore, I have been saying that there would probably be a test down to the February 10 low within a couple weeks. That was the bottom of the most recent leg up. Yesterday is a good candidate for the start of the test down.
Finally, I have said several times that there is a 50% chance that the Emini would fall to the January low by the end of March. That is still true.
But since the rally is probably a leg in a trading range, the selloff will be a bear leg in the range. Legs in trading ranges rarely go straight up or down. There is confusion, which means traders take quick profits. This results in pullbacks every few days. If the bear leg has begun, the Emini might go sideways for several days before it falls much further.
Also, despite yesterday’s big selloff, the reversal up was big. That is consistent with the trading range price action over the past 7 days. It increases the chance that today will also have at least one swing up and one swing down.
Overnight Emini Globex trading
The Emini is down 12 points in the Globex session. Day traders are aware that yesterday’s collapse was a surprise. The bulls hope that it was a bear trap and that the bull trend resumes today or early next week.
But is was such a big surprise that it more likely will have at least a small 2nd leg sideways to down withing a few days. Furthermore, the February rally is probably a bull leg in a trading range that began around Christmas. Day traders have to consider the possibility that yesterday was the start of a bear leg in a 2 month trading range. This increases the chance of several bear trend days over the next couple weeks.
Today is Friday. The most important price is the open of the week. Despite yesterday’s crash on the 5 minute chart to 30 points below the week’s open, the rally got back above the week’s open. Since yesterday was a Big Down, Big Up day, there is Big Confusion. That usually results in a trading range. It therefore increases the chance of a trading range day today. If so, today might get drawn to the open of the week in the final hour.
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 fell yesterday to 1 pip above the top of the April 2017 gap. The final 7 days of this 3 week crash formed 3 small legs down. This is therefore a parabolic wedge sell climax at major support. The bears will begin to worry about a sharp reversal up. Also, their stop is far above and many will soon cover some of their shorts to reduce risk. Traders should expect a 100 – 200 pip short covering rally to begin within a week or so. It will probably last about a couple weeks.
In addition to the parabolic wedge bottom, there is now a micro double bottom over the past 3 days. A bull day closing near its high today could be a buy signal bar for a 2 week rally to the EMA and above the October low.
Alternatively, the 4 day tight trading range is also a bear flag. But it is late in a bear trend, in a sell climax, and at support. This combination makes it a good candidate for a Final Bear Flag. If there is a bear breakout, it will probably only last a few days. Traders would then expect the short covering rally to begin after that brief bear breakout.
Much less likely is that the crash will continue down to the 2017 low without first having a 2 week short covering bounce.
Overnight EURUSD Forex trading
The 5 minute chart of the EURUSD Forex market has been sideways for 4 days at support in a sell climax. A bull day today would form a micro double bottom with Wednesday’s low.
The bulls want today to close near its high. Today would then be a buy signal bar for Monday. That could lead to several bull trend days over the next couple weeks.
A 4 day tight trading range is a Breakout Mode pattern. In addition to it being a micro double bottom, it is also a micro double top bear flag. The bears therefore might get a bear breakout today or next week.
But if they do, it will probably fail. Therefore, there could be a bear trend day within the next few days, but it will probably quickly lead to a sharp reversal up. Day traders should be prepared for a swing up starting within a week. This is true even if there is one more brief trend down.
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 sold off strongly on the open and had follow-through selling after a couple hours of sideways trading. The selloff is getting near the 1st target, which is the February 10 buy climax low.
This week closed near its low on the weekly chart. It is therefore a sell signal bar for next week on the weekly chart. The bears have a Low 2 top in a buy climax at the top of a bull channel. I have been saying that there is a 50% chance of a test of the January low by the end of March. That is still true.
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 correction began. March is gonna be more volatile. Have a good weekend.