Emini and Forex Trading Update:
Monday February 22, 2021
I will update again at the end of the day.
Pre-Open market analysis
Emini gapping down today after being in a tight trading range for 9 days. The buy climax since November has been extreme. The bears are hoping that the bulls will take profits into the end of the month.
The bulls are hoping that today’s break below the 9-day trading range will fail. They still want this rally to break above the 4,000 Big Round Number, before there is a 10% correction. However, if the bears get a couple consecutive big bear days this week, the odds will favor a 10% correction before a break above 4,000.
Overnight Emini Globex trading
The Emini is down 24 points in the Globex session. Most days have a trading range open. The bulls look for a double bottom or a wedge bottom in the first hour or two, for a possible low of the day. However, the bears look to sell a reversal down from a double top or wedge top near the EMA. The bears would also like to keep the gap open.
When there is a gap, there is an increased chance of a trend. The bigger a gap down is, the more likely that a trend would be down. The first several bars are important. If there is a series of strong trend bars in either direction, it will increase the chance that today will be a trend day.
Because the chance of a 10% correction is increasing, if today begins to trend, day traders should understand that the trend could be big. They therefore should look to swing at least part of their shorts.
Even if the Emini trades below last week’s low, and creates an outside down week, it could still reverse up. The 4,000 magnet above is powerful and the bull trend has been strong. Therefore, if there is a trend up, it could be big, and day traders should then swing part of their long positions.
Finally, remember that the Emini has been sideways for 9 days. Today could gap down and form a trading range open, and then continue sideways all day.
EURUSD Forex market trading strategies
The EURUSD Forex market on the daily chart has been in a trading range for 2 months. Friday’s tail on top is a small 3rd reversal down, and therefore the trading range is also a triangle. Additionally, this trading range is at the bottom of a 3-month trading range.
Every trading range is a Breakout Mode pattern. Traders are deciding if the current wedge top on the weekly chart is complete, or if there will be one more leg up.
Every trading range has both a buy and sell setup. The bulls see a head and shoulders bottom bull flag. For the bears, there is a double top bear flag. But, until there is a breakout, there is no breakout. The chart alternates between being bullish and bearish every few days, but the probability that a successful breakout will be up or down, never gets far from 50%. Until there are consecutive closes above or below, traders will bet on reversals.
Overnight EURUSD Forex trading
The 5-minute chart of the EURUSD Forex market sold off and reversed up overnight. There is room to the trend line at the top of the triangle on the daily chart. That is a magnet above, that the rally might reach today.
The reversal up has been strong enough so that day traders have only been buying. When a reversal is as abrupt as this one has been, the day typically either goes sideways or up. Therefore, the best the bears will probably get today are small scalps. But until there is at least a 20-pip pullback, day traders should only buy.
Can today break far above the January 22 high today? Probably not. When a market has been sideways for a long time, it typically disappoints both bull and bears. While the bulls are happy to have a reversal up, they should expect that it will not grow into a huge bull trend day.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
End of day summary
The Emini gapped down to below its 9-day tight trading range and went sideways for several hours. This was likely to lead to a breakout in either direction and then a trending trading range day.
The bulls got the breakout and the rally went above Friday’s low to close he gap. At that point, the Emini was likely to enter a trading range. It sold off, but instead of forming a trading range, it totally reversed the rally. Today was a bear trend reversal day.
Traders should also understand that the Emini has been trending down for 5 days after a buy climax. While that might not seem important, this is the 1st 4-day pullback since the rally began at the end of October. This could be the start of an Endless Pullback. If it is, it could lead to a 10% correction before there is a break above 4,000.
Traders will conclude that a correction is underway after seeing consecutive big bear bars on the daily chart. Until then, they will continue to buy selloffs. We should find out this week whether this is the start of a selloff or just another bull flag.
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.