Emini and Forex Trading Update:
Tuesday August 4, 2020
I will update again at the end of the day.
Pre-Open market analysis
The Emini gapped up yesterday. There was also a gap up on the weekly and monthly charts as well. Gaps on the monthly chart are rare. Since there was a gap down in February on the weekly chart, there is now a 4 month island bottom.
When there is a breakout and gap up on the daily chart, the Emini usually goes sideways for 2 – 3 days. Yesterday was a trading range day. That also increases the chance of more trading range trading today.
If the Emini goes sideways for a couple days, traders then decide if the breakout will lead to a trend up or if there will be a reversal down. This means there is an increased chance of another sideways day today.
However, the all-time high is a magnet above and the daily chart is in a bull trend. That increases the chance of follow-through buying at some point this week.
The importance of the gap on the daily, weekly, and monthly charts
The key for the bulls will be keeping the gap open on the weekly and monthly charts. They therefore will buy a breakout below yesterday’s low and they will try to get a reversal up from above last week’s high.
Since 2 and 3 day island tops are more common than 1 day island tops, the bulls will likely get a reversal up from below yesterday’s low and from above last week’s high. Can today be a big bull trend day? Yes, but the Emini more often has at least a couple sideways days after an important gap up. A gap up on the weekly and monthly charts is important.
What happens if the Emini closes the gap? That would increase the chance of a double top with the February high. If there is follow-through selling for a day or two, the odds of a pullback to below 3000 would go back up to 50%.
Overnight Emini Globex trading
The Emini is down 14 points in the Globex session. It therefore might gap below yesterday’s low. If so, yesterday will be a 1 day island top. Island tops and bottoms are minor patterns and small gaps usually fill early in the day.
As I wrote above, the Emini will probably have another mostly sideways day today. But if it closes the gap, the bulls will be disappointed. There would then be a better chance of a big bear day.
Yesterday’s range was small and there will probably be buyers in the gap. Consequently, there is an increased chance of a move below yesterday’s low and then a reversal up to above yesterday’s high.
Today would then be an outside up bull trend day. But since a 2nd sideways day is likely, today will probably not be a strong bull trend day, even if it is outside up.
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 pulled back yesterday in the strongest rally in 3 years. Yesterday is a High 1 bull flag buy signal bar. But it was a bear doji and it followed a strong bear reversal bar. This is a weak buy setup.
Furthermore, the rally is a nested wedge buy climax at major resistance. It is more likely that the EURUSD is beginning a 2 week profit taking pullback to around the EMA and the March 9 high breakout point. Traders expect more sellers above yesterday’s high and last week’s high than buyers.
Traders know that the selloff on the daily chart will probably not be a strong reversal down. They therefore are not expecting a series of big bear days. In fact, after the strongest rally in three years, the EURUSD might enter a tight trading range for a week or two. At that point, traders would decide whether to resume the bull trend or continue down to test the breakout points at the September 9 and March 10 highs.
Overnight EURUSD Forex trading
The 5 minute chart of the EURUSD Forex market triggered a buy signal overnight on the daily chart by going above yesterday’s high. But instead of buying the breakout above yesterday’s high, traders sold it. This makes sense since the bulls are probably looking to take profits. The EURUSD barely went above yesterday’s high and then reversed down over the past 3 hours.
Because traders expect the EURUSD to work sideways to down for a couple weeks, traders will look to sell rallies. After the 50 pip selloff over the past 3 hours, they will sell 20 – 30 pip rallies today.
However, since they know that a tight trading range is likely for a week or so, they will also look to buy reversals up. In addition, they expect a lot of trading range trading.
Therefore, despite a 50 pip selloff in a tight bear channel over the past 3 hours, they are looking for mostly sideways trading for the rest of the day. Their default will be to scalp for 10 – 20 pips unless there is a strong swing setup or a strong breakout 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
I mentioned that the Emini would probably be mostly sideways today, and it was. There was a late bear breakout of a 4 hour trading range. However, it was a bear trap and a test of the bottom of the 2 day range. The Emini reversed up to a new high and to the 3300 Big Round Number.
The top of the February gap is only 7 points above today’s close and the bulls will try to get there tomorrow. With today closing on its high and the magnet nearby, tomorrow might gap above the top of the February gap. Traders are expecting a new all-time high within a couple weeks.
There is still a 40% chance of a reversal down to below 3000 before there is a new high. However, the bears need to begin the reversal this week because the Emini is so close to the old high.
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.
