Emini and Forex Trading Update:
Wednesday May 19, 2021
Pre-Open market analysis of daily chart
- Yesterday was a bear day. It closed the gap above last Thursday’s high, eliminating last week’s 3-day island bottom.
- Today will probably gap down. That will create a 3-day island top. Remember, last week’s gap up created a 3-day island bottom, and I always point out that island tops and bottoms are usually minor reversal patterns.
- Traders are wondering if the 2-day rally is reversing down from a lower high in bear trend (major trend reversal), or simply having a pullback.
- Today will give traders useful information about what to expect over the next couple weeks.
- If it is a big bear day and it closes on its low, the odds will shift back in favor of the bears.
- If today is a big bull day, traders will see last week’s reversal up as still intact.
- If today is a small bull or bear bar, especially if it closes in the middle third, it would increase the chance of more sideways trading.
Breakout Mode on the daily and weekly charts
- Last week reversed down from above a month-long trading range, and then up from below the trading range.
- A 2nd reversal has a higher probability of success.
- Since the Emini is still in the its 5-week trading range, the bulls have only a slightly higher probability of a break above the top of the range, before there is a break below.
- On the weekly Globex chart, there are consecutive outside (OO) bars. That is a Breakout Mode pattern.
- However, the trading range alone is a Breakout Mode pattern. The OO increases the chance that the breakout up or down will lead to a 200-point measured move, based on the height of the trading range.
- Traders are deciding if the rally last week was only a pullback from the break below the range, or a reversal up from a failed breakout below.
- Last week’s 2-day rally was strong enough to make a reversal up more likely than a bounce in a new bear trend.
- But if the bears get a big bear bar today or tomorrow, the odds of a bear breakout of the 5-week trading range will be greater than of a bull breakout.
Overnight Emini Globex trading on 5-minute chart
- With today’s big gap down, the selling might continue for an hour or two.
- Since yesterday was in a sell climax for only half a day, it might sell off strongly for the 1st half of today as well.
- But, when once a sell climax lasts 50 or 60 bars, there is a 75% chance of at least a couple hours of sideways to up trading. However, that means there is a 25% chance of a big bear trend day.
- Therefore, if there is an early bear trend, it will probably convert to a trading range, or reverse up in the middle of the day.
Yesterday’s Emini setups
EURUSD Forex market trading strategies
EURUSD Forex daily chart
- Today broke above the February 25 high, but so far by only 3 pips.
- If today is a bear bar closing near its low, it will be a sell signal for a double top, and a nested wedge rally.
- The wedge is nested since the 3rd leg up is a micro wedge (blue line), which increases the probability of a reversal if today is a strong sell signal bar.
- Bulls need consecutive closes above February high, for traders to look for a possible break above the January 6 high, which is the top of the 2-year trading range.
- Trading ranges resist breaking out, and therefore traders will look for a reversal from here, or from around the January high.
Overnight EURUSD Forex trading on 5-minute chart
- Rallied to 3 pips above the February 25 high, but then reversed down to below the open, creating a bear body on the daily chart.
- If the bears are going to take control, they will make today close near its low, so that it would be a more reliable sell signal bar on the daily chart.
- If today closes above the February 25 high, traders will expect higher prices tomorrow.
- The selloff reversed up sharply to around the open of the day. Big Down, Big Up creates Big Confusion, which is a hallmark of a trading range.
- This makes a trading range likely for the rest of the day, and it will probably center around the open of the day.
- The more today closes near the low of the day, the more likely the bears are taking control. That would increase the chances of lower prices for a couple weeks.
- The more today closes near the high, the more likely the bulls are still in control. That would increase the chance of higher prices.
- If today finishes with a small bull or bear body, there is an increased chance of sideways trading for a few days.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
End of day summary
- Trading range open. Rallied from double bottom major trend reversal just above last week’s low. Also was truncated wedge bottom.
- Reversed down from measured move up from low of day to high of open. Reversal was also at 50% pullback from yesterday’s sell climax.
- Reversed back up to a new high from a higher low major trend reversal, which was a test of the high of the open and a 50% pullback.
- It then reversed down again. That rally was a 2nd leg bull trap.
- Rallied into the close and closed at the high. Bull Trending Trading Range Day.
- The bulls hope today is a double bottom reversal with last week’s low. Buy signal bar for tomorrow, and tomorrow might gap up.
- The bears hope it is a bounce at last week’s low and that last week’s selloff resumes down soon.
- After many big reversals, might have to go sideways for a few days before we know if the bulls or bears will win. Might form triangle.
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 Time
When I mention time, it is USA Pacific Time (the Emini day session opens at 6:30 am PT, and closes at 1:15 pm PT). You can read background information on the intraday market reports on the Market Update page.