Emini and Forex Trading Update:
Tuesday July 21, 2020
I will update again at the end of the day.
Pre-Open market analysis
Yesterday was a strong Small Pullback Bull Trend day. It formed the 1st bull day in 3 days and it closed above Friday’s high. It was the highest close since February.
The past month rallied in a wedge and the bears want a double top with the all-time high. However, the bulls want a strong break above the February high.
Something very important happened yesterday. The Emini finally entered the gap above the February 24 high. That was a big gap down on both the daily and weekly charts and the start of the pandemic crash. I have been saying that the Emini probably had to get there before traders would consider selling. We soon will find out just how many sellers are in the gap.
There is now a 50% chance of a new all-time high and a 50% chance of a reversal down to the middle of the 3 year trading range. The Emini might go sideways for a week or two in the gap before traders decide on the direction.
Overnight Emini Globex trading
The Emini is up 23 points in the Globex session. It therefore will probably gap above yesterday’s high. If the gap is small, it will probably close in the 1st hour.
Yesterday’s rally was very strong. But that means it was extreme and therefore a type of a buy climax. There is only a 25% chance of consecutive strong bull trend days, but there is a 50% chance of some follow-through buying in the 1st 2 hours. Therefore, if today is another bull trend day, it will probably be a weaker type, like a Broad Bull Channel or a Bull Trending Trading Range day.
When there is a strong trend, the bulls typically begin to take profits. Day traders expect at least a couple hours of sideways to down trading to start by the end of the 2nd hour.
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. I do not want the lines to be distracting. If they are longer, I make them dotted. But, they have to be visible, so I make the shorter ones solid. 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 EURUSD Forex market on the daily chart has rallied in a Small Pullback Bull Trend since the June 19 low, but the rally is stalling just below the March 9 high.
The bulls need consecutive closes above that high to make traders believe there will be a successful breakout. If there is, the next target is the September 2018 high just above 1.18 because that was the start of the 2 year bear channel.
Nested wedge rally
The past 5 days are largely overlapping one another and the bodies are small. This is a sign of a loss of momentum and it is coming at important resistance. A reversal down from here would be from a double top with the March 9 high.
When there is a reversal down from a double top, the 2nd rally often is a wedge. The March 27 high is the 1st of 3 legs up. The 2nd leg ended on June 10th. That makes the current month-long rally the 3rd leg up, and the rally from the March 23 low is therefore a wedge.
Furthermore, the 3rd leg up is itself a smaller wedge. A small wedge nested within a larger wedge increases the chance of a reversal down. If there is a reversal down, traders will look for a couple legs down lasting at least a couple weeks. The 1st target is the bottom of the 3rd leg up. That is the June 19 low.
Overnight EURUSD Forex trading
The 5 minute chart of the EURUSD Forex market reversed down after barely going above yesterday’s high. It has been in a Triangle for 6 hours. Day traders are scalping reversals for 10 pips.
This triangle is in a month-long bull trend. It is therefore a bull flag. But it is also a sign of neutrality. Consequently, the bulls only have a 55% chance of an upside breakout. There a 45% chance it is a topping pattern.
If there is a bull breakout, a triangle late in a bull trend is often the Final Bull Flag. That reduces the chance of a big rally from here. It therefore increases the chance of a reversal down from here or from slightly above the March 9 high.
Because the EURUSD is at major resistance, day traders are ready for either a big breakout above the resistance or a big reversal down. However, until there is a breakout, they will continue to scalp reversals.
Today’s close is important. If today closes near its low, traders will begin to sell on the daily chart, looking for a reversal down to the June 19 low. But if today closes near its high and above yesterday’s high, traders will expect the rally to continue up to the March 9 high. That high is only 26 pips above today’s current high.
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. I do not want the lines to be distracting. If they are longer, I make them dotted. But, they have to be visible, so I make the shorter ones solid. 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 gapped up and went sideways for most of the day. This is what I talked about before the open. Yesterday was so extreme that today was likely to have at least a couple hours of sideways to down trading.
There was a selloff in the final hour that closed the gap above yesterday’s high. Since today closed with a big bear body on the daily chart, it is a sell signal bar on the daily chart. The bears hope that the breakout into the gap will fail.
But I have been saying that the gap is a very important price and that the Emini might get stuck there for a week or two. That is still more likely that it rallying straight up to the old high or reversing down.
Traders expect an unknown number of sellers in this gap. Those sellers are the buyers from February who are happy to get out without much of a loss. They are also the buyers who bought early in the reversal up who are taking some profits. Finally, there are the bears who are betting that the gap will be the top of the 4 month rally. Traders should know within 2 weeks if there are enough sellers to turn the Emini back down to the middle of the 3 year range.
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.
