Emini and Forex Trading Update:
Thursday January 2, 2020
I will update again at the end of the day.
Pre-Open market analysis
Today is the 1st day of the year and of the new decade. There is always a little more excitement and uncertainty at any major milestone like this.
Everyone knows that the Emini is overbought. But Friday was another High 1 bull flag buy signal bar on the daily chart. The bull channel on the weekly chart is tight and the trend up is strong. The odds favor higher prices, even if Friday’s selloff leads to a 2 week pullback. In fact, Friday’s late rally was so strong that today might gap up. There would then be a gap up on the yearly chart. I do not know if that has ever happened in the history of the stock market.
Markets often have surprisingly big moves up or down around the 1st of the year. With the Emini overbought, the bears might be able to get a quick selloff. However, Friday’s strong rally makes at least slightly higher prices likely today.
Overnight Emini Globex trading
The Emini is up 18 points in the Globex session. It might gap up to a new all-time high. There would therefore be a gap up on both the monthly and yearly charts. However, the gap would be small and small gaps typically soon close. “Soon” means within a few bars. On the yearly chart, that could be a few years!
Friday’s late rally was unusually strong. It was therefore unsustainable and climactic. A strong buy climax typically attracts profit taking. Traders should expect at least a couple hours of sideways to down trading beginning by the end of the 2nd hour today and lasting at least a couple hours.
A big gap up slightly increases the chance of a trend day. The odds of a bull trend are slightly greater than the odds of a bear trend. Traders should therefore be ready for a swing up or down on the open. However, they should expect a trading range to begin 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. 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 daily chart of the EURUSD Forex market so far has a big bear inside day today. Friday was an outside day. An inside day after an outside day is an inside-outside-inside, or ioi, Breakout Mode pattern.
Since it is coming a the top of a trading range, today will be a sell signal bar for tomorrow. The bears will look for a swing down from a double top with the August high.
I have written repeatedly for 18 months that every breakout attempt up and down was more likely to reverse than successfully breakout. Markets have inertia and have a strong tendency to continue their recent behavior.
While a trend up to 1.18 is still likely in 2020, the rally will probably be a bull leg in a 2 year trading range and not a strong bull trend. Consequently, it will pretty much be the opposite of the 18 month selloff. Traders will continue to look for 2 – 3 week legs up and down.
During the past 18 months, the channel had lower highs and lows. This year, the channel will probably be up and have higher highs and lows. Today might be the start of a 2 – 3 week pullback.
The 3 month rally has been the strongest one in 2 years. It is more likely than not that it will continue up to 1.18 this year. This is true even if there is another new low first. However, today is the 2nd reversal attempt at the top of the 6 month range. That increases the chance of a leg down for a few weeks.
Overnight EURUSD Forex trading
The 5 minute chart of the EURUSD Forex market has drifted down overnight. Since the selloff has not been strong, it will probably convert into a trading range soon.
Once it does, the bulls will begin to buy reversals up. The bears will sell rallies. The result will probably be a small trading range day.
Trading will probably continue to oscillate around the 1.12 Big Round Number. That has been important resistance for several month. It was support last summer.
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 gapped up but reversed down from exactly the all-time high, which was the high of 2019. The bears wanted 2020 to be an inside bar. However, the bulls got a reversal up from a wedge bottom and the Emini finally broke above the 2019 high at the end of the day. The buying was climactic and it therefore increases the chance of an early trading range tomorrow.
The weekly and monthly charts are strongly bullish. Consequently, even if the bears get a reversal down over the next couple of weeks, it will probably be minor. The odds continue to favor higher prices over at least the next month or two.
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.
