Emini and Forex Trading Update:
Tuesday March 24, 2020
I will update again at the end of the day.
Pre-Open market analysis
The Emini is locked limit up in the Globex session today. Yesterday’s low was a 34% pullback from the high That is extremely unusual for a sell climax. Traders therefore expect a big short covering rally to begin soon.
The Fed made it clear that it will print as much money as needed to protect the economy. Traders expect Congress to pass rescue legislation this week. Finally, the American public is adjusting to the new normal. These factors will probably slow the selling.
Once traders sense that the selling is drying up, they will start to buy. The bears will begin to cover shorts and many bulls will start to buy what many now see as a cheap market. This should create a short covering rally.
Since the selloff has been extreme, the short covering could be surprisingly big. Furthermore, it could last for months instead of just a couple weeks.
The selloff has been in a Small Pullback Bear Trend. There are still targets below. Every reversal attempt failed in one or two days. Can the bulls get a 3 day rally? If they do, traders will be more confident that the 1st leg might have ended.
It is important to remember that the rally will be in a bear market. The final low typically comes about a year after the bear trend began. Therefore, the best the bulls can probably get over the next several months is a bull leg in a trading range and not a resumption of the bull trend. On average, there is no new high until about 3 years after a bear market begins.
Can the bulls get March to close above the December 2018 low?
There is about a week left to the month. The month so far is a huge bear bar. Most big bear trend bars have a tail on the bottom.
This means that there probably will be some buying before the end of the month. The 1st goal for the bulls is to get the month to close back above the December 2018 low of 2343.25. That will tend to limit the selling going into the end of the month.
Overnight Emini Globex trading
The Emini rallied repeated to the 5% limit up level over the past few hours. However, it has been unable to stay there.
This is similar to yesterday’s Globex session being unable to stay limit down. That was followed by a trading range day.
Will today be another trading range day? Most days over the past 2 weeks have had at least one swing up and one swing down. Traders will expect that again today.
With the Emini hitting limit up in the Globex session, today will probably not be a big bear trend day. There is an increased chance of a bull trend day. The odds are not as high as they would have been if the Emini did not pull back from being limit up.
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 had a huge reversal down after a huge reversal up. It is in an expanding triangle. However, the bulls need a strong reversal up to convince traders that the 8 month trading range is intact. Without that, the bears will try to continue the 2 year bear trend down to par (1.00).
Friday and Monday formed a micro double bottom in a sell climax. Because they were doji candlesticks, they lack conviction for the bulls. That makes them weak buy signal bars. However, traders expect a short covering rally soon.
By today going above yesterday’s high, the EURUSD triggered a weak buy signal. Since the 2 week selloff has been climactic, the 1st reversal up will probably be minor. A minor reversal means that it becomes either a bear flag or a bull leg in what will end up as a trading range. There is only a 30% chance of a major reversal into a bull trend without at least a double bottom.
Overnight EURUSD Forex trading
The 5 minute chart of the EURUSD Forex market broke above yesterday’s high. This triggered a minor buy signal on the daily chart. However, the rally only went slightly above yesterday’s high before pulling back. This is a weak bull breakout.
The EURUSD has been sideways for 6 hours. Day traders have been scalping for about 20 pips. There is no sign that this is about to end.
The bulls would like today to close far above yesterday’s high. But they would be satisfied with it closing just a little above that high.
The bears want the day to close on its low. It would then be a stronger Low 1 sell signal bar for tomorrow. Their minimum goal is a close below yesterday’s high. They would like a close below the open so that today would be a more reliable sell signal bar for tomorrow.
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
After a gap up, the Emini formed a small triangle. The bulls got a rally for a couple hours. There was then a deep pullback and the day entered a trading range. Since today closed near its high, there is an increased chance of higher prices tomorrow.
While the bulls hope that today will be the start of a short covering rally, the day was not particularly strongly bullish. Furthermore, the daily chart is still in a Small Pullback Bear Trend. So far, today is just a 1 day pullback.
But if the bulls can get 2 – 3 or more consecutive bull days, especially with big bodies, traders will look for a trading range over then next month or more.
It is unrealistic to think that there will be a V bottom like after December 2018. The best the bulls can probably get over the next year is a trading range.
For the bears, today is a Low 1 sell signal bar in a strong bear trend. But the trend is climactic and today’s bull body make it a weak sell signal bar. Traders expect a strong short covering rally and then a trading range soon. Consequently, there is likely not much downside risk over the next couple weeks.
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.
Interesting, I personally know a trader that had to rapidly sell off a large portion of his gold and silver coin collection at steep discounts to cover margin calls in the market, so Al’s explanation is the best I have heard so far, as normally you might expect gold to be a possible safe haven when the market falls.
Hi Al, I have noticed recently that my intraday swing trading fares much better with the VIX elevated. I just cut my position size to 1-3 Micro ES and trade as normal. I know you use the size of the bars on the chart to estimate volatility, do you ever use the VIX as well? It seems to me that, as the VIX is forward looking, it may prove helpful to estimate the probability of a TTR day (which I struggle to trade profitably).
I sometimes trade the VIX, but I don’t use it to trade the Emini. When the VIX is high, the daily range and the 5 minute bars are big. If they are big enough, I trade smaller.
I find it interesting that gold is the one market that is almost back where it was when this all started.
I noticed that, too. I assume traders had to sell everything, including gold, during the crash, and then value bulls bought once they decided traders did not need to raise any more cash to cover margin calls. Impossible to know, but also very difficult to trade any market when it is having so many big reversals, like gold has had for a month.