Emini and Forex Trading Update:
Monday December 28, 2020
I will update again at the end of the day.
Pre-Open market analysis
Last Thursday (pre-Christmas holiday) was a bull inside bar on the daily chart, after a big bull day a week ago. Today is a High 1 buy signal bar in a Small Pullback Bull Trend.
On the weekly chart, last week is also a High 1 bull flag buy signal bar in a strong bull trend. This week should trigger both buy signals.
The bulls want the year to close on its high when it ends on Thursday. They then want January 4, the 1st trading day of 2021, to gap above this year’s high. There would then be a gap up to a new all-time high on the yearly chart, which might not have ever happened before in the stock market.
The bears want a selloff to 3500 to begin this week, but they might have to wait until after January 6. At the moment, the Emini is rallying strongly enough to go at least a little higher.
The week before Christmas and New Year’s normally has the quietest trading of the year. That increases the chance of a lot of time in very tight trading ranges.
Overnight Emini Globex trading
The Emini is up 27 points in the Globex session. Today will therefore have a big gap up, and it might gap to a new all-time high.
When there is a big gap up, the Emini is far above the 20-bar EMA. Many traders do not like to pay far above the average price. The result usually is an early trading range. The bulls want to buy either a double bottom, or wedge bottom near the EMA, which is one measure of the average price.
The bears will look to sell an early rally to a wedge top or double top, betting on a move down to the EMA. In either case, the Emini typically forms a 1- to 2-hour trading range on the open, until it gets near the EMA. Traders then decide if there will be a trend up or down.
When there is a big gap, there is an increased chance of a trend. If there is a trend, up is slightly more likely. But there is only a 25% chance of a trend from the open.
Also, if there is a trading range open, which is likely, and then a trend, the trend would be coming after a trading range. When a trend comes from a neutral market, it tends to be weaker and not last until the close. Therefore, unless there is a strong trend on the open, the Emini will probably spend a lot of time going sideways today, even if there is a 3-hour swing up or down.
Previous day’s setups
EURUSD Forex market trading strategies
The EURUSD Forex market on the daily chart is still in a Small Pullback Bull Trend, and the February 2018 high above 1.25 is the next target. However, the bull channel in December has had 3 legs up, and it is the 3rd leg up from the November 4 low. This is a nested wedge, and it increases the chance of at least a couple legs down to below the December 9 low, beginning within the next 2 weeks. Reversals have an increased chance of coming at the start of a year in Forex markets.
While Friday was a reversal day, it had a bull body. Also, there is a 6-day tight trading range. This is not a strong sell setup. If there is a reversal down this week, it will probably be minor. That means it would probably last 2 or 3 weeks and end at support, like the December 9 high, or the September 1 high. But until there is a big bear day breaking below the 3-week bull channel, traders will expect sideways to up trading.
It is important to note that most of the days in December had prominent tails. This is 2-sided trading and a sign that the rally is losing momentum. It increases the chance of a reversal down soon. But until there is a strong reversal, the odds continue to favor at least higher prices.
Overnight EURUSD Forex trading
The 5-minute chart of the EURUSD Forex market rallied and sold off overnight. It is within Friday’s range and still in a 6-day tight trading range.
If it remains an inside day, which it probably will, there will be an ioi (inside-outside-inside) pattern on the daily chart because Friday was an outside day. This and last week’s ii (inside-inside) pattern are Breakout Mode Patterns, which means the probability of a bear breakout is about the same as for a bull breakout. That is another reason for traders to look for a reversal down within the next couple weeks.
The final week of the year tends to be quiet. Also, this is the 6th day in a tight trading range. Day traders have been looking for reversals and taking quick profits. But because the daily chart is in Breakout Mode, they will switch to swing trading if there is a series of big trend bars in either direction.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
I will post chart after the close.
End of day summary
The Emini gapped to a new all-time high, but then pulled back. It then broke to the upside and rallied in a Spike and Channel Bull Trend. As was likely, it had a break below the bull trend line and the bull channel converted into a trading range.
The Emini today triggered High 1 bull flag buy signals on the daily and weekly charts. The bulls are trying to get the year to close on its high. Since today was a bull day, there is an increased chance of at least slightly higher prices tomorrow.
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.