Emini and Forex Trading Update:
Wednesday January 13, 2021
I will update again at the end of the day.
Pre-Open market analysis
The Emini formed a perfect doji bar yesterday, which is unusual. It came after 5 consecutive bull bars. It is a weak High 1 bull flag buy signal bar for a 2-day pullback from Friday’s all-time high. But a doji is a weak buy set-up. That means the probability of a big move above yesterday’s high is small. It makes it more likely that today will be a 4th consecutive sideways day.
The bull trend has lasted a long time on all time-frames. That increases the chance of a correction coming at any time. I have been saying that there was an increased risk after January 6. We are now in that window.
Even though there is an increased risk of a reversal down in January, Friday closed on its high. The bulls who bought that high have not been able to get out without a loss. If enough buy this 2-day pullback, the Emini will test that all-time high. Then, if many disappointed bulls who bought Friday decide to exit, their selling could create a small double top. But as long as the Emini continues in its bull trend, it is easier to make money buying.
I keep making the point that picking the exact top or bottom is a low probability trade. My 80% Rule says “80% of trend reversal attempts fail.” While the buy climaxes on the daily, weekly, and monthly charts increase the chance of a reversal, the odds still favor higher prices. However, the risk is greater over the next week or two.
Overnight Emini Globex trading
The Emini is down 8 points in the Globex session. There has not been a bear day for 6 days. That is unusual and it therefore increases the chance of a close below the open today. The open could be a magnet in the final hour if the Emini is within 10 points of it.
The open of the week has been a magnet all week. It might be a magnet in the final hour on Friday when the weekly candlestick closes.
After 3 consecutive sideways days, day traders expect another trading range day. That means at least one swing up and one swing down, and either can come first. With the daily chart in a bull trend, traders expect the bull trend to resume. However, with an increased risk of a correction beginning over the next few weeks, traders are aware that a series of bear days can begin at any time.
EURUSD Forex market trading strategies
The EURUSD Forex market on the daily chart has been sideways for 3 days after a strong 3-day selloff. The bears hope that yesterday was just a pause in an early bear trend. But the bulls want a micro double bottom and a higher low. They want the 3-month bull trend to continue.
It is important to note that the daily chart has been sideways for 3 months. It is now in the middle of that trading range. A trading range is a Breakout Mode pattern. In general, traders assume that there is a 50% chance of a successful bear breakout and a 50% chance of a successful bull breakout.
The probabilities shift a little, depending on the recent bars. After 3 big bear bars, it is slightly more likely that the bears will win. But if there is a big bull bar tomorrow, the odds will then favor the bulls.
Until there is a breakout, there is no breakout. Traders will continue to look for reversals every few days. Once there is a breakout, traders will look for at least a couple legs and a measured move, based on the 300-pip height of the range.
Overnight EURUSD Forex trading
The 5-minute chart of the EURUSD Forex market broke above yesterday’s high on today’s open, which triggered a buy signal for a higher low on the daily chart. But there were sellers above, and the EURUSD trended down on the 5-minute chart.
Remember, 2 days ago I said that there was a 3-day bear channel on the 5-minute chart, and that bear channels typically end by the 3rd day. Furthermore, I said that the bulls would get a 1- to 3- day bounce. Today’s open met the minimum expectation. The bears now hope that the 3-day bear trend is resuming.
But the EURUSD has now been sideways for 3 days. It might go sideways more before deciding on the direction of the next move.
The overnight selloff has been strong. Day traders have only been selling. However, with the EURUSD now in the middle of a 3-day trading range, the overnight bear trend will probably convert into a trading range soon.
Until there is a 30-pip bounce, day traders will only sell. But once there has been a 30-pip bounce, day traders will assume that the bear trend has evolved into a trading range. They will then be willing to buy as well as sell. If the EURUSD enters a trading range for an hour or more, the bulls will have a 30% chance of a reversal day.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
End of day summary
Today sold off on the open, but reversed up from the open of the week. The rally continued in a cup and handle bull trend and bull channel to above yesterday’s high. This triggered a High 1 buy signal on the daily chart.
More importantly, there is a magnet at Friday’s all-time high close. That is the magnet that is pulling the Emini up. The bulls want the bull trend to continue to far above last week’s high. However, if enough of last week’s bulls exit once they are made whole, there could be a reversal down from a double top.
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.