Emini and Forex Trading Update:
Friday December 18, 2020
I will update again at the end of the day.
Pre-Open market analysis
The Emini yesterday formed another small day that closed almost exactly where it opened. Most days for the past 7 weeks closed near the open or midpoint of the day’s range. The large number of these neutral bars in the rally from the October 30 low, increases the chance of a pullback lasting for a two to three weeks beginning by early January. The minimum target is around the November 10 low and 3,500, which is the start of the current Small Pullback Bull Trend.
Many traders are buying into the end of the year, expecting the 9-month rally to last into January. They want the year to close on its high. That would increase the chance of higher prices in January.
But if the Emini begins to turn down, those bulls might exit quickly. Their long covering (selling out of their longs) could create a surprisingly fast drop into the end of the year.
There is no reversal yet, and therefore traders continue to expect at least slightly higher prices every day. But if the Emini reverses down in the next few days, traders would see the selloff as a wedge reversal after 3 legs up. The 1st two tops were November 16 and December 9. A reversal from a wedge top usually has at least a couple legs down.
Overnight Emini Globex trading
The Emini is up 3 points in the Globex session. Yesterday was a small, sideways day. That increases the chance of more trading range trading today.
Because the Emini is overbought, there is an increased chance of either a reversal down, or an acceleration up into a blow-off top at any time. Also, we are near the end of the year. Markets often make big moves just before or just after a bar closes. The bars on the yearly and monthly charts close in two weeks. That means that there could be a surprisingly big move in either direction.
It is important to understand that a surprise is a low probability event. That means it is more likely that nothing big will happen on any given day. Day traders expect that today will behave like most of the days over the past 7 weeks. The days have had both a swing up and a swing down, and a lot of trading range trading.
Expect huge volume just before 1 pm PST today
There is one special event today that will probably result in a dramatic move at the end of the day. Tesla enters the S&P500 index on Monday. There are many huge funds that track the S&P exactly. They therefore will have to own Tesla at today’s close. Today is also quadruple witching, which also will add to the volume of trading.
With Tesla being a $600 billion company, huge volume in Tesla will probably affect the index and all of its derivatives. The Emini is a derivative. Therefore, even if the Emini is quiet all day, traders should expect a lot of volume at the end of the day. Bar 78 on the 5-minute chart, the 1 pm PST bar, typically has the biggest volume of the day, because it corresponds to the close of the stock market.
The Emini will have extremely big volume during bar 78 today, with much of it coming in the final 20 seconds before 1 pm. This could also result in a huge bar. While a bull bar is more likely, it could be down as well if enough firms front-run the Tesla entry and overdid their buying.
EURUSD Forex market trading strategies
The EURUSD Forex market on the daily chart, so far today, has a bear inside bar after two big bull days. The bears want a sell signal bar for a wedge top at two measured move targets .
However, after two big bull bars closing on their highs, traders typically will buy the 1st reversal down. Therefore, even if today closes on its low, and becomes a good sell signal bar, the reversal down will probably only last one or two days. But if the bull trend resumed, which is likely, and then there was a 2nd reversal down next week, the bears would have a better chance of a trend reversal.
However, even if the EURUSD sold off for a few weeks, it probably would not continue down into a bear trend. This is because the 2-month bull channel has been tight. A reversal down after a tight bull channel usually leads to a trading range, and not a bear trend. Once there is a trading range, there is usually both a double top and a double bottom. At that point, the bears would have a 40% chance of an actual trend reversal down.
Overnight EURUSD Forex trading
The 5-minute chart of the EURUSD Forex market has had many reversals in a small range overnight. Forex day traders have been scalping for 10 pips.
The bears know that today will probably grow into a big bear day. They simply want a sign that the bull trend on the daily chart is stalling. For example, they would like today to be small, and possibly stay within yesterday’s range. More importantly, they want today to close near the low of the day. While they know that the sell signal on the daily chart would be minor, they would be one step closer to getting a trend reversal over the next couple weeks.
The bulls want a 3rd consecutive big bull day closing on its high. However, the past 2 days were likely exhaustive, and that is therefore unlikely. At a minimum, they would like the day to close near the open. They want to avoid having today be a strong sell signal bar. A neutral close today would increase the chance of higher prices next week, even if Monday pulled back.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
End of day summary
The Emini sold off on the open, but then then entered a trading range. It sold off again to the open of the week and rallied strongly into the close. That strong, late rally was fueled in part by funds buying Tesla ahead of it being added to the S&P500 index ahead of the open on Monday.
Today was an outside down day, but closed near its high. This week also closed near its high. Traders expect at least slightly higher prices next week.
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.