Emini and Forex Trading Update:
Monday January 4, 2021
I will update again at the end of the day.
Pre-Open market analysis
The Emini formed an outside up day on Thursday, which was the final trading day of 2020. More importantly, the Emini closed at a new all-time high. The bulls hope for an Emini gap up above Thursday’s high today, which it probably will. That would form a gap up to a new high on the daily, weekly, monthly, and yearly charts, which might not have ever happened before in the history of the stock market. It would increases the chance of at least slightly higher prices this week.
However, the daily chart is in the channel phase of a Spike and Channel Bull Trend. Traders should expect a test down to the start of the channel by the end of January. That is around 3500. It is important to note that there is no top yet and the bull trend is strong. Traders will continue to bet on higher prices until there is a clear reversal down.
Overnight Emini Globex trading
The Emini is up 14 points in the Globex session. It will probably gap above Thursday’s high. There would also be a gap up on the weekly, monthly, and yearly charts. That would increase the chance of a trend day. If there is a trend, up is more likely.
Because the chart pattern is so unusual, there is no reliable history for comparison. That creates uncertainty, which means confusion. Confusion tends to lead to a trading range. Also, it is also common to see 2 or 3 sideways days when there is a gap above important resistance. Day traders have to be open to anything today.
EURUSD Forex market trading strategies
The EURUSD Forex market on the daily chart has been in a strong bull trend since the November 4 low. It reversed down for 2 days last week after a small wedge top.
However, today so far is a big bull day after a big bear day, and today’s open is near the top of Friday’s bear body. This is a special type of bear trap, and it usually leads to higher prices if the bull bar closes near its high. It would be even better for the bulls if today can close 20 or more pips above last week’s high.
If it does not, the bears still might get a double top with last week’s high and a reversal down. Today would then be a bull trap after Friday’s bear trap.
There is a measured move target at 1.2409, which is based on the height of the August through November trading range. A more important target is the February 2018 high of 1.2555 (not shown). There is a 50% chance that this rally will get there without more than a 5-day pullback.
Overnight EURUSD Forex trading
The 5-minute chart of the EURUSD Forex market opened near Friday’s open, which is the top of Friday’s bear body on the daily chart. It then rallied in a Small Pullback bull trend overnight. Traders have only been buying.
The EURUSD is now back again at the top of its 3-week trading range. Because of the bear trap on the daily chart, traders expect higher prices this week. But if the bulls cannot break above the 3-week trading range, traders will then expect another leg down in the range.
The overnight rally was a Trending Trading Range type of bull trend. There was an early tight trading range, a breakout, and then a 2nd trading range. The height of the trading ranges is small. Therefore, day traders have only been buying.
But because the range is so small, day traders have had a difficult time making even only 10 pips over the past 4 hours. They will continue to only look to buy until the bears can create at least a 20-pip leg down. They will also sell if there is a breakout above the range that reverses down, or a 30-pip bear breakout below the range.
The bulls will be satisfied if today closes around where it is now. There would then be a strong bear trap on the daily chart. The bears want to weaken this buy signal by creating a conspicuous tail on top of today’s candlestick. They will need the day to close at least 20 pips down from the high.
Can today reverse down? Since the EURUSD is at the top of a 3-week trading range, a reversal down can come at any time. But the bear trap makes it more likely that the EURUSD will close near the high of the day.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
End of day summary
The Emini today gapped up, as expected, but immediately reversed down. In fact, it traded below Thursday’s low and last week’s low. Thursday was outside up and today was outside down. This week is also now an outside down week. There was a midday reversal up and the day closed just below the middle.
Consecutive outside days is an OO (outside-outside), which is a Breakout Mode pattern. Today is both a buy and sell signal bar on the daily charts. With it being a big bear day and with the Emini being late in a bull channel on the daily chart, it is more likely that the sell signal will trigger this week. But the big tail on the bottom of day’s candlestick creates uncertainty. That increases the chance of the Emini going sideways tomorrow. If the bears get more bear bars, traders will look for a test of the start of the bull channel, which is the November 10 low around 3500.
What happens if tomorrow is a bull inside bar? It would be a buy signal for an IOI pattern. The OO pattern will still be in effect, with sellers below today’s low and buyers above today’s 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.
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.