Emini and Forex Trading Update:
Tuesday May 26, 2020
I will update again at the end of the day.
Pre-Open market analysis
Last week triggered a High 1 bull flag buy signal on the monthly chart when the Emini broke above the April high. The Emini spent the entire week in a tight range oscillating around the April high.
This is the final week of the month. If this week closes above the April high, traders will expect at least slightly higher prices in May.
Friday was a pullback in a bull trend. It is therefore a High 1 bull flag buy signal bar for today. However, it had only a small bull body and it is therefore not a strong buy signal bar. Additionally, it followed a big bear bar. Also, there is a 5 day tight trading range. These factors lower the probability of a big rally today. But, the Emini should work at least a little higher.
Friday had a bull body on the daily chart and last week had a bull body on the weekly chart. The 200 day moving average and the March 3 lower high are magnets above. Traders expect the 2 month bull trend to reach at least the 200 day moving average at some point this week.
However, the entire rally is only a leg in a 2 1/2 year trading range. Traders expect a bear leg. The sell zone is around the 200 day moving average and the March 3 lower high. That means 3,000 – 3,100.
Overnight Emini Globex trading
The Emini is up 59 points in the Globex session. It will probably gap up on both the daily and weekly charts. A big gap up increases the chance of a trend day. Up is more likely than down.
However, the chart will open far above the average price. The 20 bar EMA is one measure of the average price. Many bulls will only pay far above average if the price action is far above average.
If the bulls do not get consecutive big bull bars closing near their highs within the first 5 bars, traders will expect the Emini to enter a trading range. This happens 80% of the time when there is a big gap up or down. The bulls will look to buy a double bottom or wedge bull flag near the EMA, which traders see as an average price. But the bears want the breakout to fail. They will look for a wedge top or double top and a swing down.
When there is a trading range open, there is a reduced chance of a huge trend day. That early sideways trading is a sign that traders see the price as just about right. They become less willing to buy too far above or sell too far below. Therefore, the breakout of the range usually leads to a 2 – 3 hour trend, and then either a reversal or a trading range.
EURUSD Forex market trading strategies
The EURUSD Forex has been in a trading range on the daily chart for 2 months. This is Breakout Mode. The last time the chart was clear was at the top of the March 27 rally. Traders assume that the trading range is slightly more likely to have a successful upside breakout.
There is a head and shoulders bottom. The EURUSD rallied from the May 7 higher low. It then pulled back and formed another higher low yesterday.
Today so far is a big bull trend bar on the daily chart. But it is important to note that the chart is still in its 2 month range. It sold off from this price level twice in the past 2 months. Traders know that trading ranges have strong legs up and down. They also know that there is no breakout until there is a clear breakout.
The bulls need consecutive bars closing above the May 1 high to conclude that the breakout will probably continue up to the next resistance. That is the March 27 high.
A more important target is the March 9 buy climax high. That is also the high of the past 19 months. If the EURUSD closes above that, traders will believe that the 2 year bear trend has ended.
Overnight EURUSD Forex trading
The EURUSD rallied overnight on the 5 minute chart overnight. Day traders were only buying.
There was a 20 pip pullback 3 hours ago and then again over the past hour. Traders are wondering if the bull trend is transitioning into a trading range. These pullbacks are big enough to make day traders begin to short for scalps. However, they will continue to buy. They know that it is easier to make money as a bull when the chart is in a bull trend.
The bulls want today to close on its high. That will increase the chance of a break above the 2 month range tomorrow. The bears always want the opposite. A bear trend today is unlikely after such a strong overnight rally.
However, the bears want the day to close well off its high. They will therefore sell rallies. If there is a 20 – 30 pip tall tail on the top of the candlestick on the daily chart, traders will see that as hesitation. It will reduce the chance of a breakout tomorrow.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
End of day summary
After a big gap up above the 3,000 Big Round Number and the 200 day moving average, the Emini sold off for 2 hours. It reversed up from above yesterday’s high in a big High 2 bull flag and entered a trading range. The bears got trend resumption down at the end of the day and the Emini closed back at the 200 day moving average.
Since today closed on its low, it is a sell signal bar for tomorrow. The bears see today as a failed breakout above the 200 day moving average. However, the March 3 high is still an important magnet above. Therefore, there might be more buyers than sellers below today’s low.
The Emini is now in the sell zone, which is between the 200 day moving average and the March 3 lower high. It will probably be unable to break much above that high without first retracing about half of the 2 month rally.
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.