Emini and Forex Trading Update:
Wednesday December 9, 2020
I will update again at the end of the day.
Pre-Open market analysis
The Emini formed an outside up day yesterday and made another new all-time high. However, there have been consecutive strong bull bars only once since October 12, and that reduces the chance of a 2nd strong bull bar tomorrow.
The bull trend is strong on the daily, weekly, and monthly charts. There is a Small Pullback Bull Trend on the daily chart since November 10. Traders expect higher prices. But the rally from the October low has been extreme. That typically will attract profit takers.
Also, the rally over the past 2 weeks has had several small pushes up in a tight bull channel. It is therefore a micro wedge and a type of buy climax. That increases the chance of at least a several day pullback coming at any time. But until the bears can start to create bear strong bear bars, traders expect the Emini to go higher.
I wrote in November that the Emini would probably rally for the 1st couple weeks of December, but there was in increased risk of a reversal down in the 2nd half of the month. It could come sooner, or it could come in the final days of the month.
The reason is that the yearly chart (not shown) is at the high of the year and the year is a big outside up bar late in a bull trend. That type of bar typically has a conspicuous tail on top. To get that tail, the Emini will need to drop about 100 points from the high before the end of the year.
Overnight Emini Globex trading
The Emini is up 6 points in the Globex session. It is trading around yesterday’s high and it therefore might gap up to a new all-time high. If so, the gap will be small. Small gaps typically close early in the day.
Since yesterday was climactic, day traders expect at least a couple hours of trading range trading to begin by the end of the 2nd hour. If today is a bull day, it will probably be a weaker bull day, like a Trending Trading Range Day or a Broad Bull Channel. On the daily chart, there has only been one instance of consecutive strong bull bars in 2 months. That also reduces the chance of a big bull trend day today.
What is most likely? Look back at the bull bars on the daily chart for the past 2 months. Most of the time, the next day was neutral. It either closed near the open or in the middle of the range. That is what is most likely today.
With the parabolic wedge buy climax on the daily chart, a big bear day can come at any time. However, day traders expect a neutral day today. But, most days for over a month have had at least one swing up and one swing down. Day traders will therefore expect that again today.
EURUSD Forex market trading strategies
The EURUSD Forex market on the daily chart has gone sideways for 4 days, after a climactic breakout above a 4-month trading range. It is at the bottom of a cluster of measured move targets, which are resistance.
The breakout was strong enough to make a 2nd leg up likely. But it was also climactic. That often results in a pullback that lasts longer, and is deeper than what traders expect.
Yesterday was a High 1 buy signal bar. However, it was the 3rd consecutive bear day. That is a weak buy setup. It might have more sellers than buyers above. The bulls would like a strong buy signal bar, which is a bull bar closing near its high. After 3 bear bars, there will likely be at least a small 2nd leg sideways to down.
The bears want the breakout to fail. They have a 40% chance. But if they can create a couple big bear bars closing on their lows, the odds will increase to better than 50%. At a minimum, they want a deep pullback, like to below the breakout point, which is the September 1 high.
If they get that, the EURUSD will probably enter a trading range for at least 10 to 20 bars. At that point, the bears will have a better chance of creating a reliable top, like a double top.
At the moment, the odds favor more sideways to down, and then a continuation up to the February 2018 high above 1.25 at some point next year.
Overnight EURUSD Forex trading
The 5-minute chart of the EURUSD Forex market went above yesterday’s high in the European session. That triggered the High 1 bull flag buy signal. However, as expected, there were more sellers than buyers above, and the EURUSD reversed down sharply. It is currently back at the open of the session.
The reversal down was strong enough to make a bull trend day unlikely. However, the EURUSD has been sideways for 4 days in a bull trend. That reduces the chance that the selling will continue for the rest of the day. Therefore, traders expect today to remain sideways. Day traders will look to sell reversals down from rallies, buy reversals up from selloffs, and take quick profits. That is trading range price action, and it should lead to a trading range for the remainder of the day.
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
Today reversed down from above yesterday’s high and a new all-time high to below yesterday’s low. Today was therefore an outside down day. The Small Pullback Bear Trend evolved into a trading range after consecutive wedge bottoms.
Yesterday was an outside up day. Consecutive outside days is an oo (outside-outside) pattern, which is a Breakout Mode pattern. Many traders will sell below today’s low and buy above today’s high. With the Emini overbought, more traders will be willing to sell.
What happens if tomorrow does not go above today’s high or below its low? The buy and sell signals would still be in effect. Sometimes it takes several days to trigger. The day after an outside day often is an inside day. That creates an ioi (inside-outside-inside) pattern, which is another Breakout Mode setup.
If the buy triggers, the OO will probably be a Final Bull Flag because it is coming late in a bull trend. If the sell signal triggers, there is a higher probability of several days down because the Emini is overbought and at resistance.
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.