Emini and Forex Trading Update:
Tuesday December 22, 2020
I will update again at the end of the day.
Pre-Open market analysis
The Emini yesterday sold off to the bottom of the 3-week trading range and reversed up strongly. The selloff was also a test of the open of the month and last week’s low.
Yesterday is a High 1 buy signal bar for today. The bulls want the year to close on its high. They then want 2021 to gap up to a new high. That would create a gap up on the yearly chart, which might not have ever happened before in the history of the stock market (I have not checked).
The day after a buy climax day usually has at least a couple hours of sideways to down trading that begins by the end of the 2nd hour. There is only a 25% chance of a 2nd strong bull trend day. If today is a bull trend day, it will probably be a weaker type of bull trend, like a broad bull channel, or a Trending Trading Range day.
Can today be a strong bear day? While its always possible, a selloff today would more likely lead to a trading range day and not a bear trend.
Overnight Emini Globex trading
The Emini is up 6 points in the Globex session. The bulls want s resumption of yesterday’s strong rally. At a minimum, they want today to go above yesterday’s high. That would trigger a buy signal on the daily chart.
But yesterday had a big tail on top and the Emini is back in the middle of its 3-week range. This is not a strong buy setup on the daily chart, which reduces the chance of a big bull trend day.
Yesterday rallied strongly, but was sideways for the final 4 hours. Today will probably open in yesterday’s late trading range. But with yesterday’s rally being so strong, traders expect at least some trend resumption up today. With the Emini closing near yesterday’s high, traders expect today to trade above yesterday’s high. That would trigger the buy signal on the daily chart.
However, yesterday had a huge range. Traders who buy above have a stop far below. Many traders do not want to risk too much, especially in a trading range. That reduces the number of bulls who will buy aggressively above yesterday’s high. Also, as I wrote above, the day after a climactic rally typically has at least a couple hours of sideways to down trading that begins by the end of the 2nd hour. That further reduces the chance of a big bull trend today.
Yesterday’s pullbacks were small. The bulls were relentless. That makes a strong bear trend day unlikely.
Traders expect today to test yesterday’s high, not form a bear trend day, and be either sideways or have a bullish bias. However, we are at the end of the year, and the year has been incredibly strong. That increases the chance of a strong trend up or down in the remaining days of 2020. It is more likely that the Emini will wait for next year before deciding on the direction of the breakout of the 3-week range.
EURUSD Forex market trading strategies
The EURUSD Forex market on the daily chart is in a wedge bull channel, and triggered a weak sell signal yesterday. Yesterday reversed up and became a buy signal bar. Today triggered the buy signal by going above yesterday’s high. However, it did not yet go above Friday’s high, and the EURUSD is therefore still on the sell signal.
The sell signal was weak because a small bear doji is usually insufficient to reverse a strong bull trend. Yesterday’s buy signal is also weak. This is because it had a big tail and a small body. That is a big doji, which is typically more of a trading range bar than the start of a bull trend.
When there is a weak signal, fewer traders are willing to bet on a trend. Also, the entry is typically weak. That disappoints the traders who took the signal, and they tend to take quick profits. The result is usually a small trading range. Consequently, the EURUSD will probably go more sideways for a couple days than up or down.
Overnight EURUSD Forex trading
The 5-minute chart of the EURUSD Forex market sold off a little overnight, but then reversed up to just above yesterday’s high. This triggered the buy signal on the daily chart. However, the rally barely went above yesterday’s high, and then reversed back down to yesterday’s close and today’s open.
While today is a bull reversal day, it is small. Also, the rally turned down from resistance. The reversal down so far is minor, and the reversal up was reasonably strong. That makes it likely that the bulls will test yesterday’s high again. They will therefore probably buy this pullback. However, the bears were able to reverse the market down from just after triggering the daily buy signal. They probably will sell again around yesterday’s high.
With sellers above and buyers below, the EURUSD will probably be in a trading range today. Since the daily chart is in a bull trend, and there were reversals up yesterday and today, if there is a trend today, up is more likely. However, the overnight trading has had several small reversals in a relatively small range. Day traders will probably look to scalp for the remainder of the day, unless there is a strong series of bars in either direction.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
End of day summary
Today sold off briefly after a trading range open and then rallied back to the high. It remained in a trading range all day. The bulls want trend resumption up after yesterday’s strong rally, and they will probably try again tomorrow.
The Emini has been in a trading range of 4 weeks. Traders are deciding how the year will end. The bulls want a new high, which would increase the chance of a continued rally into early 2021. The bears want a break below the trading range and then a measured move down to below 3500. Whether or not there is a rally into early January, the Emini will probably sell off to below 3500 starting by early January.
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.