Emini and Forex Trading Update:
Wednesday August 18, 2020
I will update again at the end of the day.
Pre-Open market analysis
The S&P 500 cash index has poked above the all-time highest close several times over the past week. Because it was hanging just below that resistance instead of reversing down, I have been saying that the bulls would not consider taking profits until after a new closing high. They got their new closing high yesterday.
The reason why they will likely begin to take some profits before the end of the month is that the Emini had a streak of 9 consecutive bull days that ended last week. That is extreme and the Emini should retrace down to the start of that streak at a minimum. That means a test of 3200.
But the 2 prior similar streaks led to about 10% corrections. Consequently, the profit taking might continue down to around the 3000 Big Round Number.
Might get outside down and an oo pattern
Yesterday was an outside up day at a price where traders are looking for either a breakout or a reversal. Since yesterday’s range was not big, there is an increased chance of today trading above yesterday’s high and then trending down to below yesterday’s low.
That would create an oo pattern (consecutive outside bars), which is a Breakout Mode setup. Today would be both a buy and a sell signal bar for tomorrow.
Overnight Emini Globex trading
The Emini is up 2 points in the Globex session. The bulls want a gap up and at test of the 3400 Big Round Number. They know that the cash index is at a price where it might reverse. They therefore want a big bull day closing on its high. That would increase the chance of follow-through buying over the next few days.
The bears want today to be a sell signal bar. For example, it could trade above yesterday’s high and close near its low, it could be an inside bar closing near its low, or it could be an outside down bar, especially if it closed near its low and below yesterday’s low.
What is most likely? The Emini has had a lot of trading range days around the February high. It is therefore likely that today will again have at least one swing up and one swing down. Also, it could be another small day like Monday. This could create an ioi (inside-outside-inside) Breakout Mode pattern for tomorrow.
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 yesterday broke above the double top of a 3 week trading range yesterday. The bar was a bigger bar so it might soon attract profit takers. However, after 6 consecutive bull bars, the bulls will buy the 1st pullback. They are hoping it is a measuring gap for a 200 pip measured move up.
A trading range is a Breakout Mode pattern so there is a 50% chance of the breakout reversing down. Furthermore, a trading range late in a bull trend is a candidate for a Final Bull Flag. Therefore, even if the rally reaches the target, traders will look for a reversal down.
The past 6 days were bull days. While this is extreme and therefore climactic, it is a sign of strong bulls. Many bulls will buy the 1st 1 – 2 day pullback. Traders will want to see at least a micro double top before concluding that this breakout is failing.
Overnight EURUSD Forex trading
The 5 minute chart of the EURUSD Forex market has been in a tight trading range overnight. It is within yesterday’s range and oscillating around yesterday’s close and today’s open. It is the follow-through day after yesterday’s breakout. As long as today does not have a bear body, traders will expect at least a small 2nd leg up.
However, if there is even a 1 pip bear body, traders will begin to wonder if the breakout will fail. If it is a bear bar with at least a 20 pip body and a close on its low, the odds will shift in favor of a failed breakout.
Today will probably remain small and sideways, but its close will be important. So far, day traders have been scalping for 10 pips. But because follow-though bars can affect the direction of the next few days, there is an increased chance of a big trend day 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. 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 Email rallied in a weak bull channel and then entered a trading range. It sold off on the FOMC minutes to test the cash index February highest close. It bounced to EMA and then sold off again to close just above yesterday’s low.
Yesterday was an outside up day and the bulls prevented today from being an outside down day and an oo sell signal bar. It is still a sell signal bar for tomorrow, but the setup is not as good. It is at the bottom of a 3 day tight trading range so the probability is less. The stop is far above so the risk is big.
Is this the start of the move down to 3200 that I said will begin by the end of the month? It might be, but the bears need a strong bear day tomorrow. The reversal up from just above yesterday’s low lowers the probability of a collapse tomorrow.
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.
Al, thx for the daily update.
In your opinion what is the percentage of technical traders vs fundamental traders in the stock market, institution wise? We retailers only are about 5% of the trading force, or even less as you mentioned in the course.
The market most of the time seems to be run by technical traders.
95% of all of the volume is institutional. Maybe 75% of it is trading, which means algorithms and technical, and 20% might be investing, which is mostly fundamental.
What is the probability of a pullback to 3000? (As opposed to 3200)
3,200 before the end of the year, 60%.
3,000 before the end of the year, 40%.
Thanks Al! I’m surprised to hear it’s only 40% considering the last 2 times this climatic bull trend occurred there were 10% corrections.