Emini and Forex Trading Update:
Wednesday January 22, 2020
I will update again at the end of the day.
Pre-Open market analysis
Over the weekend, I said that this week would probably not form a big bull bar on the weekly chart. That is because the past 2 weeks were big bull bars. A 3rd one late in a bull trend would be very unusual.
Yesterday tried to become an outside up day on the daily chart, but failed to get above Friday’s high. It was the 3rd small sideways day.
There is now a micro double top on the daily chart. Yesterday is therefore a sell signal bar on the daily chart in a 4 month buy climax. But with a bull body and 2 big weeks up, this is a weak sell setup.
I also wrote over the weekend that this week will probably not be strongly bearish. It will probably be a pause after 2 big bull weeks on the weekly chart. A pause bar is could be a doji or a small bull bar.
It is important to remember that the weekly chart has consecutive big bull bars coming late in a bull trend. There is therefore a 60% chance of a 5% pullback beginning within a few weeks.
Overnight Emini Globex trading
The Emini is up 12 points in the Globex session. It might therefore have a small gap up to a new all-time high today. However, the past 2 days on the daily chart have been dojis. Also, this week will probably not be a big bull bar on the weekly chart. Therefore there is less of a chance of a big bull trend day today. Also, small gaps typically close early in the day.
Because the daily and weekly charts are unusually extremely overbought, traders expect profit taking soon. That means there will probably be one or more big bear days coming within a few weeks.
For example, if today gaps above yesterday’s high and then sells off to below yesterday’s low, today would be an outside down day. That would increase the chance of lower prices tomorrow. It would also increase the chance of a bear bar on the weekly chart.
EURUSD Forex market trading strategies
The daily chart of the EURUSD Forex market has been in a trading range for 6 months. There is always going to be a reasonable buy setup and a reasonable sell setup in a trading range. The bears currently have a head and shoulders top while the bulls have a double bottom. They bulls now also have a 3 day micro double bottom.
Since trading ranges resist breaking out, these trend setups usually fail. At some point, there will be a successful breakout, but every breakout attempt up and down for the past 20 months has failed. Consequently, traders continue to look for reversals every few weeks.
After the current 3 week selloff, traders expect a 2 – 3 week rally soon. They are deciding if the current bottom attempt will be the start of the rally.
However, reversals usually come after breaking above some obvious support or resistance. The December 20 low is an example. Because this selloff has not quite reached that magnet, traders are hesitant to buy.
Has the 3 week bear leg ended?
The price action is not strongly bullish. The buy signal bar on Monday was a small bull doji. Today so far is another small bull bar. This does not represent strong rejection of the current price. Many traders want to see a stronger reversal up, and one that preferably comes from below more major support.
However, if there is a Bull Surprise bar this week, they will conclude that a 2 – 3 week rally has begun. In the meantime, the buying is weak.
But so is the selling. Traders expect reversals every few weeks. This selloff has lasted more than 3 weeks. When a market is in a trading range, traders want to buy low and sell high. The EURUSD is now low. Traders prefer to buy here and not sell. The bears want to sell rallies and not at the low. This is resulting in the lack of big bear bars down here.
Because the odds favor a reversal up soon, traders are looking for a strong buy signal bar or a big bull bar. Alternatively, they want a strong break below the December lows. That would then lead to at least a couple small legs down to the November 29 low or the October low. In the meantime, they are mostly day trading for small profits.
Overnight EURUSD Forex trading
The 5 minute chart of the EURUSD Forex market has been in a 20 pip range overnight. It sold off to below Monday’s low by 1 pip and reversed up. There is now a micro double bottom on the daily chart with that low.
The bulls want today to close on its high and have a big bull body on the daily chart. Today would then be a reasonable buy signal bar on the daily chart. That would increase the chance of a rally over the next week or two.
The bears want a break below the December lows. They therefore want today to break again below Monday’s low and for today to close far below that low.
With the range being only 20 pips so far, there is no strong sense that the price is wrong. Day traders are looking for 10 pip scalps from small reversals. Because of the possibility of a 2 week rally or a break below the December lows, day traders will switch to swing trading if there is a strong breakout up or down. But at the moment, that is not likely to happen today.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
End of day summary
The Emini sold off from a new all-time high today. Today is a sell signal bar for tomorrow. There is now a Low 2 top with Friday.
It is important to remember what I wrote over the weekend. There is an increased chance of one or more big bear days coming soon. This is because there is a 60% chance of a 5% correction beginning within the next 3 weeks.
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.