Emini and Forex Trading Update:
Tuesday September 8, 2020
I will update again at the end of the day.
Pre-Open market analysis
Emini futures sold off Friday on the open, but reversed up from a parabolic wedge sell climax for the rest of the day, erasing more than half of Friday’s selloff. The selloff dipped below the bottom of the streak of 7 consecutive bull days and reversed up, which I have been saying was the 1st target for the bears.
Because Friday reversed up, it is a buy signal bar for today. But with its big bear body, it is a weak buy signal. There will probably be sellers above its high, especially around 3500. Traders expect a 2nd leg down, maybe to the bottom of the streak of 9 consecutive bull bars, which is around 3200. Less likely, to the start of the 2 month tight bull channel, which was around 3,000
Did the selloff end on Friday? That is unlikely. But if the bulls get 2 or 3 big bull bars this week, traders will begin to wonder if the bull trend is resuming.
Last week traded above the high of the prior week and then below its low. It was therefore an outside down week in a buy climax on the weekly chart. Since it closed in the middle third of the bar, it is a weak sell signal bar for this week. However, traders should expect lower prices and the bears will try to trigger the sell signal by getting this week to trade below last week’s low.
Overnight Emini Globex trading
The Emini futures is down 44 points in the Globex session. It will therefore open with a big gap down.
When there is a big gap down, the Emini is far below the average price. One measure is the 20 bar EMA. Unless there are strong bear bars on the open, many bears will not sell on the open. They are only willing to sell far below the average price if the bars are very bearish.
Most of the time, a big gap down leads to a trading range open. The bears look for a wedge rally or a double top in the 1st hour or two to around the EMA and they then sell, hoping for the high of the day. The bulls look for a wedge bottom or a double bottom to buy for a swing up. There are often several minor legs before there is a good enough setup for a swing up or down.
There is sometimes a strong trend up or down that begins within the first few bars after a big gap down. Traders typically want to see consecutive strong bear trend bars before they are willing to sell, but they will often buy above a single big bear bar.
The bears want a close far below last week’s low. They want traders to conclude that the Emini will work lower for several weeks.
The bulls will buy around last week’s low. The want a double bottom with Thursday’s selloff. If they get a strong reversal up, traders will suspect that the selloff had ended.
At the moment, the bear case on the daily and weekly charts is more likely. Traders will continue to sell rallies until the bulls create s very strong reversal up. Friday’s rally was not enough.
Last Friday’s setups
EURUSD Forex market trading strategies
The EURUSD Forex market on the daily chart turned down from a wedge top last week, but it is still in the August trading range. As long as it is in the trading range, it is still in Breakout Mode. That means that the probability of a successful breakout up or down is about the same.
It has sold off for 6 days so the odds currently slightly favor a bear breakout. But until there is a breakout, there is no breakout. Traders are ready for a bounce up from the bottom of the range if the bears fail to get a couple closes below the August low.
Overnight EURUSD Forex trading
The 5 minute chart of the EURUSD Forex market formed a bear trending trading range day overnight. There was a trading range, a bear breakout, and then another trading range. After dipping a few pips below last week’s low, the EURUSD reversed up from a double bottom. However, it is still in the lower trading range.
The bears want today to close far below last week’s low. Last week’s candlestick was a bear reversal bar and therefore a sell signal bar for a 4 month wedge top.
Today barely triggered the weekly sell signal, but then bounced back above the low of the sell signal bar. Remember, the EURUSD has been sideways for 7 weeks. Traders expect reversals down from the top and up from the bottom.
But just like the overnight bear breakout was small, so was the bounce. Traders are still deciding if this breakout below last week’s low will continue down to below the bottom of the 7 week trading range. Since most legs up and down in trading ranges lead to reversals and not breakouts, it is more likely that the EURUSD will bounce today or tomorrow than continue much further down.
Because the 5 minute chart has been in trading ranges overnight, day traders have been scalping for 10 pips up or down. They know that a breakout and a trend can begin at any time. But while they wait, they will scalp.
At a minimum, the bears want today to close below last week’s low and at the low of the session. That would increase the chance of lower prices tomorrow.
However, the bulls want today to close above the midpoint of the day and especially above the open of the session. They would then expect higher prices tomorrow.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
End of day summary
The Emini had a big gap down today. By going below last week’s low, it triggered a minor sell signal on the weekly chart. However, it then entered a trading range for several hours.
In the middle of the day, the bears got a reversal down from a test of the high of the day. The selloff made a new low. Today closed below last week’s low, which is a sign of strong bears.
The 50 day MA is a magnet just below. Other magnets are the August low and the close of 3200.
The Emini will probably bounce this week, but traders expect a 2nd leg down to 3000 – 3200 within a few weeks.
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.