Emini and Forex Trading Update:
Wednesday August 14, 2019
I will update again at the end of the day.
Pre-Open market analysis
I have been saying since Friday that this week would go above last week’s high to trigger the weekly buy signal. But I also said that there probably would be sellers above last week’s high and that the Emini is probably beginning to form a trading range that will last at least a couple weeks more. Yesterday triggered the buy signal but did not close far above last week’s high. That hesitation is consistent with what I have been saying.
Something important happened yesterday on the 5 minute chart. That rally on the open was so unusually strong that it would normally have a 60% chance of follow-through buying over the next several days. However, context is important. It was also a test of last week’s high, and a trading range is likely for at least a couple weeks. Therefore, there is a 50% chance that it will turn out to be a bull trap and it will form a double top with last week’s high.
Overnight Emini Globex trading
The Emini is down 43 points in the Globex session. It therefore is reversing most of yesterday’s rally. But because the daily chart is in a trading range, this selloff might simply be a test of Monday’s low and a deep pullback from yesterday’s rally. The bears hope that it is the start of a reversal down from a double top with last week’s high.
Both possibilities are equally likely. The location at the bottom of the 5 day range is good for the bulls, but the likely big gap down today from yesterday’s close is good for the bears.
Day traders will be ready for anything today. There might be a break below Monday’s low and a trend down, or a reversal up after a test of Monday’s low. Finally, since the Emini has been sideways for 5 days and yesterday spent most of the day in a trading range, today could be another trading range day.
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.
EURUSD Forex market trading strategies
The EURUSD daily Forex chart has been in a tight trading range for 7 days. That is a Breakout Mode pattern. The bears see the rally to August 6 as a lower high in a yearlong bear channel. They want a reversal down to a new low.
However, traders know that the rally was strong enough to have at least a small 2nd leg up. What they do not know is if there will be a breakout above this tight trading range and then a 2nd leg up, or a test back down to the May low before a 2nd leg up begins.
Until there is a breakout, there is no breakout. Traders will continue to buy near the bottom of the 7 day range and sell near the top until there is a breakout. Traders know that when a market is in Breakout Mode, there is a 50% chance of either a bull or bear breakout. Furthermore, there is a 50% chance that the 1st breakout up or down will fail.
Overnight EURUSD Forex trading
The EURUSD 5 minute Forex chart has been in a 25 pip range at the bottom of the 7 day tight trading range. Even though yesterday was a big bear day on the daily chart, it did not break strongly below the bottom of the range. Consequently, there has been no follow-through selling today. Day traders overnight have been willing to buy near the tight trading range low. The bears are selling rallies, but are not selling at the low. Instead, they have been scalping out of their shorts.
Because today’s range is unusually small, it will probably increase. Since the chart is at the bottom of the tight trading range, there is a slightly greater chance of the range expanding to the upside.
However, there is no sign that the trading range behavior of the past 7 days is about to end. Day traders have been scalping as they wait for a breakout up or 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.
End of day summary
The Emini sold off strongly on today’s inversion of the 2/10 yield curve. The interest rate on the 10 year note fell below that of the 2 year note. This is the 1st time in about 10 years. An inverted yield curve typically leads to a recession. However, that recession usually begins about 18 months later. In fact, the market is up an average of 12% a year after the inversion.
After a huge selloff today, the Emini reversed up from consecutive wedge bottoms. While the day closed on the low, it was mostly sideways for the final 4 hours.
Yesterday was a big bull day, but today opened near yesterday’s low and sold off. That is a strong bull trap and it increases the chance of lower prices. This week might become outside down and the bears might get their test below 2800.
I have been saying for the past 2 weeks that the Emini will be sideways for possibly several more weeks. That is still the case. It might have to test below 2800 before there is a bottom. That is a Big Round Number. The Globex market tested below it last week. That increases the odds that the day session will as well within a week or so.
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 Intraday Market Update page.
You said today that above 11 would not be a good buy because, since 11 went above the high of bear bar 10, 10 would be the signal bar and 11 would be the entry bar. It seems to me that since 11 is an outside bar, one could consider it to be the signal bar and 12 to be the entry bar. I noticed you also didn’t consider above outside up bar 33 a good stop entry, even though is was a possible failure of a triple bottom 22, 28, 30. Do you generally avoid buying an outside up reversal bar?
Outside up bars can be reliable buy signal bars, but context is important. For example, they are often good in a bull trend or at the bottom of a trading range.
In general, outside up bars that do not close far above the high of the prior bar are less reliable, especially if the prior bar was a bear bar and the bear trend is in a tight bear channel.
I don’t know if you were in the chat room yesterday, but I repeatedly made the point that the Emini was in a bear trend and if a bull is buying with a stop, the setup has to be PERFECT. I stressed PERFECT and explained what I meant. I specifically said that those were not perfect and traders should not take those buys. The odds favored sellers not too far above and a continuation of the bear channel.