Emini and Forex Trading Update:
Friday February 28, 2020
I will update again at the end of the day.
Pre-Open market analysis
Yesterday opened almost exactly at a 10% correction from the high. It rallied early but then sold off to close on its low and well below 3000.
Yes, the selling is climactic and at support, but it is unusually strong. There will probably be a violent short covering rally within the next few days. However, the Emini will probably be sideways to down for at least another month. It may have seen the high for the year. Remember, I have been saying that the Emini would probably be sideways all year between 2900 and 3500. It is now at the bottom of that range.
I also said several times that a recession is likely in the fall. The stock market usually sells off 6 months before a recession. This is a good candidate for the start of a 20% correction that could lead to a recession later this year.
Can today collapse? The daily chart is in a bear trend. If there is going to be a big surprise, down is more likely than up. However, because there is an extreme sell climax at a cluster of support, the chance of another huge bear day is less than otherwise in a bear trend. More likely, the Emini will have one or two big bull days within the next few days.
But it may be just neutral today. It often has to stop going down for a day or so before it can go up.
Monthly chart is important today
Today is the final day of the week and month. February is a huge outside down month. If it closes near the low, there will be an increased chance of lower prices in March.
But, if today rallies strongly, there will be a big tail on the bottom of the February candlestick. It would be less bearish going into March. There would be an increased chance of more short covering next week.
Overnight Emini Globex trading
The Emini is down 45 points in the Globex session. It will probably gap down today.
When there is a big gap down, the Emini is far below the EMA on the 5 minute chart. Traders are hesitant to sell far below the average price, especially in an oversold market. That reduces the chance of a big bear trend day from the open.
However, there might be bargain hunters and then bears might cover some of their shorts. Therefore, there is an increased chance of a bull trend day. But with the uncertainty over the weekend, it is more likely that a sharp short covering rally will come next week and not today.
A big gap down usually leads to a trading range for the 1st hour or two. The Emini gets closer to the EMA by going sideways to up. Once near the EMA, the bears will look for a double top or wedge top to sell. The bulls want a double bottom or wedge bottom. Both are looking for a swing trade to begin in the opening trading range.
If there is a trading range open, it reduces the chance of a big trend day. That early trading range trading is a sign that the market is getting neutral. That increases the chance of more trading range trading later in the day and reduces the chance of a relentless trend day.
EURUSD Forex market trading strategies
The daily chart of the EURUSD Forex market had a bull Surprise Breakout yesterday. It is a buy climax and at the resistance of the bottom of the 2 month trading range.
The 6 day rally and yesterday were surprisingly strong. That typically means that traders will buy the 1st selloff. The bears usually will need at least a micro double top before they can get a new low.
There is obvious support below at the October low. It is almost exactly at yesterday’s low. Since yesterday was a buy climax, its low is a magnet. Also, that is around a 50% pullback. Traders should expect a test down to begin within a few days. There will then probably be a higher low and at least one more leg sideways to up.
Overnight EURUSD Forex trading
The 5 minute chart of the EURUSD Forex market rallied and then reversed down overnight. Today so far is a bear trend reversal day on the daily chart. It is at resistance and it comes after a buy climax. Traders should expect sideways to down trading for a few days.
The 80 pip overnight selloff has been in a tight bear channel. Day traders have only been selling.
However the momentum slowed over the past 2 hours. Also, the bears have already achieved their goal of creating a reversal day. Consequently they have less need to sell.
The day will probably start to go sideways around the open and yesterday’s close. The bears want the day to close near its low so that there will be a strong sell signal bar on the daily chart.
The bulls want the day to close above the open. Today would still be a sell signal bar on the daily chart, but it would be weaker. That would increase the chance of sideways trading early next week instead of having a test down beginning on Monday.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
End of day summary
After a big gap down and selloff on the open, the Emini rallied up to below yesterday’s low. By closing the gap, the bulls finally showed a sign of strength. The day was a trading range day. After an extreme sell climax, traders should expect a strong short covering rally early next week. This is especially true with today closing near its high.
Since the Emini is back in last year’s 6 month trading range, the top of that range is again resistance. Consequently, the short covering rally will probably stall just above 3000.
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.