Emini and Forex Trading Update:
Monday March 16, 2020
I will update again at the end of the day.
Pre-Open market analysis
The Emini collapsed in March. Since the selloff had 3 legs down, it is a parabolic wedge. That usually attracts some profit taking. This is especially true when the climax is extreme and near support. Traders see the selloff as a test of the bottom of the 2 year trading range. That is the December 2018 low.
Friday sold off and then reversed up strongly. The context on the daily chart is good for the bulls. If today is a big bull day, then the 1 – 2 week short covering rally would have likely begun. If so, everything will probably go up for the next week or so.
But it is important to note that the daily chart is in a strong bear trend. When there are big surprises in a strong trend, they usually come in the direction of the trend. Consequently, despite a parabolic wedge bottom at support, the Emini could collapse further today and over the next week.
It has been crashing for 4 weeks, but not quite enough to be called a crash. If it hits the 13% or 20% locked limit down levels today, traders will call it a crash. It would then be comparable to 1987 and 1929.
Limit down in the Globex session
The Emini traded down 5% in the Globex market and it has stayed there. That means it is locked limit down. Traders are deciding if the overnight selloff is a pullback from Friday’s late rally or if that rally has failed. Will Friday’s rally just be a bull trap in a strong bear trend? Or, will today’s limit down open reverse up quickly and be a bear trap in a new 2 week rally?
Remember, even if today reverses back up strongly, traders should expect the final low to be many months from now. It might even come in a year. This is not January 2019. This looks like 1987 or worse. If a V bottom begins, there is only a 20 – 30% chance that it will be the end of the bear trend.
When there were only 100 Americans infected with the coronavirus a few weeks ago, I said that 40 – 70% of America could get infected. America’s behavior tells me that people are coming to that conclusion.
Very few of us were around during WWII or the Great Depression, and none of us lived through the 1919 pandemic. Those are the last times when there was such a widespread, prolonged change in the behavior of America. This change has probably already created a recession. Traders are deciding how bad things will get. If today sells off strongly, then a 40 – 50% selloff will be more likely than not.
Overnight Emini Globex trading
The Emini is locked limit down. It will probably stay limit down until the day session opens. There might be enough panic selling to quickly drive it down to -7%. That is the 1st day session limit.
I mentioned that there are additional trading halts at -13% and -20%. If it hits either, this will be called a crash. Crashes are rare. There were only 2 in the last century. I was trading during the 1987 Crash. The extreme change of behavior in our people is enough to turn this into a crash.
It probably will not happen, but this is the environment that can create a crash. Traders should only consider buying if there is a very strong rally. Let’s hope that this is a bear trap and the start of a 2 week rally.
Even if it is, the mood of our country is so bleak and deep-seated that traders have to expect even a strong rally to fail. We are going lower. I have mentioned 40 – 50% as reasonable targets many times over the past 2 years. If today sells off, this bear trend will reach those targets quickly.
EURUSD Forex market trading strategies
The daily chart of the EURUSD Forex market had a big rally and then 4 big bear days. Big Up, Big Down creates Big Confusion. That typically results in a trading range.
I said last week at the top of the buy climax that there would a 50% pullback to the EMA, the January 31 breakout point, and the March 3 buy climax low. Last week’s selloff reached those targets and therefore the bears will take profits. The bulls expect a 2nd leg sideways to up after their strong 2 week rally, but they want to make sure the selling has ended. They will wait for a 2nd reversal up. The bears expect a 2nd leg down from their strong selloff. Therefore, traders should expect sellers not far above Friday’s high.
Overnight EURUSD Forex trading
The 5 minute chart of the EURUSD Forex market tested Friday’s low overnight and reversed up. It broke above Friday’s high and pulled back.
This is trading range price action. Traders are betting that the 4 day bear trend will not get too far and that it is too early for the 2 week bull trend to resume. They are expecting reversals and a buying selloffs and selling rallies.
The overnight reversal was probably strong enough to that the overnight low will hold. However, it was not strong enough to make a big break above Friday’s high likely.
Traders expect a limit order market on the daily chart (reversals instead of breakouts). That usually results in lots of reversals on the 5 minute chart. The legs up and down for scalpers to make 20 – 30 pip scalps. Unless there is a surprise breakout up or down today, day traders will continue to scalp.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
End of day summary
The Emini opened limit down and continued down to within a percent of the -13% circuit breaker. It reversed up strongly from a test of the December 2018 low. However, after a wedge rally, it sold off again to below last week’s low.
The bulls are hoping that this is near the end of the selling. But, today had a bear body. It is therefore a weak buy signal bar for a double bottom and for a parabolic wedge sell climax. However, the odds still favor a strong short covering rally beginning this week.
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.