Emini and Forex Trading Update:
Monday October 26, 2020
I will update again at the end of the day.
Pre-Open market analysis
An Emini weak breakout triggered above a wedge bull flag buy signal on Friday, but Friday had a bear body. That is a weak entry for the bulls. But it had a big tail below. It is therefore also a weak sell signal bar for the bears who want a micro double top with last Tuesday or Wednesday’s highs.
I have been saying that the Emini will probably trade down to the middle of the 3-year trading range before getting much above the September all-time high, but it might test that high first. Traders are deciding if the reversal down has begun.
Since the rally 3 weeks ago was strong and there was no strong sell signal bar at either the September or October highs, the odds favor at least a small leg up from here. However, whether or not the bulls get a rally, traders think it will not last more than a week or two.
If instead the Emini breaks strongly below last week’s low, which was the bottom of a wedge bull flag on the daily chart, traders will conclude that a swing down is underway. At the moment, traders are looking for a bounce to at least the October 10 lower high.
Last week of October tends to be up
Here is a calendar oddity. The Emini has a 90% chance of being higher on the close of November 5 than on the open of October 26. Why? Who knows? All I know is that I did lots of calendar testing long ago and this is something I observed.
I do not place trades based on calendar tendencies because I do not think traders can trade them profitably. Anything that is easy to discover will be quickly found by the computers and none would take the opposite side. Geese that lay golden eggs always get loved to death quickly by opportunistic algorithms. I view calendar tendencies like this as a form of entertainment and not a source of income.
Overnight Emini Globex trading
The Emini is down 35 points in the Globex market. It will probably gap below Friday’s low. That will trigger the minor micro double top sell signal on the daily chart. But since Friday was a doji just above the 20-day EMA and at the bottom of a 5-day tight trading range, this is a weak sell setup. That reduces the chance that today will be a big bear day.
Whenever there is a big gap down, there is a 20% chance that the day will form a trend from the open. Because the gap was down, the odds of a bear trend are slightly greater.
However, there is an 80% chance of a trading range open. That means traders expect the 1st leg up or down to evolve into a trading range for an hour or two instead of growing into a trend. If there is a trading range open, the bulls will look to buy a reversal up from either a double bottom or a wedge bottom.
If there are early bull bars, day traders will not be eager to short far below the average price (the 20-bar EMA). However, they will sell if the Emini goes sideways to around the EMA and forms a double top or wedge top.
EURUSD Forex market trading strategies
The EURUSD Forex market on the daily chart has been sideways for 4 days at the September 2018 high, which has been a magnet for 3 months. The bulls see the 4 days as a bull flag in the rally that began on September 25. However, for the bears, there is a double top with the September 21 high and a micro double top with Thursday’s high.
The chart is in the middle of a 3-month trading range. There is always both a credible buy and sell setup. Traders continue to look for reversals every few days. They buy low, sell high, and take quick profits. The result is that the trading range can continue a long time. With the US presidential election next week, there is an increased chance that the 4-day tight trading range at the September 2018 high might last all week.
If today closes near its low, it will be a bear inside day and a sell signal bar for tomorrow. But it would be forming in the middle of a tight trading range and just above the EMA. That is a weak sell setup.
If today closes on the high of the day, today will have a bull body. Today would form a micro double bottom with Thursday’s low and it would be a buy signal bar for a 3-day bull flag.
Overnight EURUSD Forex trading
The 5-minute chart of the EURUSD Forex market sold off overnight to the bottom third of the 4-day tight trading range and bounced. When the market is sideways, traders look to buy reversals up from the bottom 3rd. This is true even when the day has sold off all night.
The EURUSD bounced 20 pips over the past 2 hours. That is enough for day traders to begin to look to buy pullbacks in addition to selling. They have been selling all night, but now they will only sell pullbacks. With both bulls and bears looking to enter on pullbacks and to take small profits, the overnight bear trend is probably evolving into a trading range.
The bulls want today to close near its high. However, after a relentless selloff overnight, they will probably need the EURUSD to go sideways for at least a couple hours and form a double bottom before they can get a trend reversal.
At the moment, day traders will look to buy and sell for scalps for at least a couple hours and probably for the remainder of the day.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
End of day summary
Today sold off strongly to below the open of the month and then just below the February high. It then reversed up strongly and closed just above the midpoint of the range.
That is important because it means that the bulls owned the day. It reduces the chance of a big follow-through bear day tomorrow. The bulls hope that today was just a sell vacuum test of support. They want a bull bar tomorrow for a failed breakout.
The bears hope that the break below the wedge bull flag on the daily chart will lead to a measured move down and then a break below the September low.
What is most likely? This is the final week of the month. Yesterday spent a lot of time around the open of the month. Traders are deciding if October will have a bull or bear body on the monthly chart. There is an increased chance that the Emini will stay in a range around the open of the month through Friday, the end of the month.
Tomorrow is important because it is the follow-through bar on the daily chart. The more bearish it is, the more likely the Emini is beginning a swing down.
Remember, I have been saying for over a month that the Emini will probably test 3,000 before going much above the September high, if it goes above the September high. Traders are deciding if the swing down has begun.
See the weekly update for a discussion of the price action on the weekly chart and for what to expect going into next week.
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.