Emini short covering rally will lead to April trading range

Emini and Forex Trading Update:
Wednesday March 25, 2020

I will update again at the end of the day.

Pre-Open market analysis

Yesterday gapped up and rallied. But the bulls were unable to maintain control and the day entered a trading range. Because it closed near its high, there is an increased chance of higher prices today.

Everyone knows that the selling has been unusually extreme. There has not been a comparable initial selloff since the Great Depression. Consequently, the downside risk from here is probably not great over the next few weeks. Traders are looking for a short covering rally. It might have begun yesterday.

If the bulls can start to get bull bars on the daily chart, the bear trend will evolve into a trading range. Since the selloff was so extreme, the bears might not sell aggressively again for more than a month. The trading range could last several months. If yesterday was not the start of the trading range, it will probably begin soon.

From a fundamental perspective, the Fed basically said that they will print as much money as need to keep the economy going. Since the selloff has been huge, traders believe that the Fed will prevent much further downside near term.

Trading range likely after strong bear trend

Yesterday broke above the tight bear channel and the December 2018 low on the daily chart. Today is the follow-through day. If the bulls get another big bull bar on the daily chart, traders will conclude that the short covering rally is underway.

But since the rally will probably be minor, a trading range is likely. When the market is in a trading range, traders regularly get disappointed. Therefore today will probably not be an obviously strong bull trend day.

However, the minimum that the bulls want is a close at or above the open. That would increase the chance of higher prices over the next week.

The bears know that the daily chart is still in a Small Pullback Bear Trend. They want it to continue indefinitely. They therefore will try to make yesterday’s rally trap hopeful bulls. If today is a bear bar closing near its low, today will be a sell signal bar for a Low 1 bear flag. If tomorrow is then a big bear bar, traders will conclude that the bear trend is still intact.

Overnight Emini Globex trading

The Emini rallied overnight and then sold off. However, it has been mostly sideways. Traders want more information.

They might be waiting for tomorrow’s Jobless Claims. Everyone knows they will be horribly high. I suspect the issue is more technical. Traders are deciding if the break below the December 2018 low will succeed or fail.

With the sell climax being the most extreme since the 1929 Crash, there is probably not much left to the downside over the next few weeks. That increases the chance of higher prices and bull trend days.

But since any rally will probably end up as a leg in a 2 – 6 month trading range, traders should expect disappointing follow-through and lots of reversals. That increases the chance of more trading range trading on the 5 minute chart as well. Most days over the past 2 weeks have had at least one reversal. That is likely again today.

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 daily chart of the EURUSD Forex market is trying to reverse up from a sell climax. There is a micro double bottom and an expanding triangle bottom.

However, the bulls need a close above the top of the 2 big doji candlesticks to make traders think that a 2 week rally might be beginning. If they get a close far above yesterday’s high, traders would expect higher prices.

But even if they get their rally, it will more likely be a leg in the 8 month trading range than the start of a bull trend. Strong bear trends typically do not reverse into bull trends without first transitioning into trading ranges. Consequently, if the bulls get a rally for a couple of weeks, most traders would like to see a test back down and then a 2nd reversal up. If they get that, the bulls would have a better chance of creating a bull trend.

Overnight EURUSD Forex trading

The 5 minute chart of the EURUSD Forex market so far has been sideways and within yesterday’s range. It is an inside day. Traders are in search of more information. If it remains that way, it will be both a buy and sell signal bar on the daily chart for tomorrow.

The past 3 days have had bull bodies. That is good for the bulls. But if there is going to be a rally, traders want to see one or more big bull trend days.

So far today, day traders have been scalping for 20 pips. The bulls will try to get today to close above the open. Today would then be the 4th consecutive bull day on the daily charts. That represents buying pressure and it increases the chance of the rally beginning soon.

Can the past 4 days be a bear flag? Of course, but after an extreme sell climax, it would probably be the Final Bear Flag. Traders expect a bounce soon.

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 but reversed up from a wedge bottom. It rallied strongly to above last week’s high after Monday fell below last week’s low. This week is now an outside up week.

However, the late selloff from a lower high major trend reversal erased much of the bullishness. There was a small bull body on the daily chart. That is enough to confirm yesterday’s rally, but is the minimum confirmation possible.

Today is a sell signal bar for tomorrow. There is still a Small Pullback Bear Trend. But after 2 closes above the month-long bear channel, there will probably be buyers below today’s low.

There are only 4 trading days left to the month. The bulls want March to close back above the 12 year bull trend line. That is just above 2600 and clearly within reach.

See the weekly update for a discussion of the price action on the weekly chart and for what to expect going into next week.

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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.

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