Emini and Forex Trading Update:
Wednesday October 14, 2020
I will update again at the end of the day.
Pre-Open market analysis
The Emini yesterday sold off to below Monday’s low. That makes yesterday a pullback in the 4-day rally. It is now a High 1 bull flag buy signal bar for today.
But because of its bear body, it is a weak buy setup. Also, traders might want to see one more test of the support around yesterday’s low before they become confident that the 4-day rally will continue up to a new high. That support is the 3500 Big Round Number, the open of the week, and the EMA on the 60-minute chart.
Remember that the Emini gapped up on the weekly chart many times this summer. Most of those gaps closed before the week ended. The bears will try to close this week’s gap up as well. Therefore, Friday’s high, which is the bottom of the gap, is another magnet below. If the Emini falls below Friday’s high, it would close the gap on the weekly chart.
Can the 4-day rally form a lower high double top with the September high and begin a bear trend? Yes, but the 4-day rally was strong enough so that there will probably be at least one more push up this week. Traders currently expect the rally to get closer to the September all-time high before the bears will try to get a reversal down.
Overnight Emini Globex trading
The Emini is down 1 point in the Globex session. Since yesterday is a weak buy signal bar on the daily chart, today will probably not rally far above yesterday’s high today. Also, after 4 bull days, today will probably not be a big bear day.
Finally, there were several magnets at yesterday’s low. Traders will probably want to test them again today. Consequently, there is an increased chance that today will be a 2nd sideways day. Traders will expect at least one swing up and one swing down. Therefore, if the day begins with a trend, traders will look for either a reversal or a trading range after 2 – 3 hours.
Any day can become a trend day. If there is a series of strong trend bars in either direction, traders will be more willing to hold onto positions. A trading range day is more likely.
EURUSD Forex market trading strategies
The EURUSD Forex market on the daily chart reversed down from a wedge bear flag at the resistance of the September 2018 high and the September 21 sell climax high. But the sell signal bar 2 days ago was a doji, and the 3-week rally has been a Small Pullback Bull Trend. That is a weak sell setup.
While the bears might get a 2nd leg sideways to down over the next few days, they need a big bear day today to convince traders that the wedge was a major sell signal. That is unlikely.
The bulls hope that this week will just be another small pullback in a 3-week Small Pullback Bull Trend.
The dominant feature of the chart is the 3-month trading range. There is now also an 11-day tight trading range. Trading ranges resist change. They tend to continue indefinitely. Consequently, more sideways is more likely than a resumption of this summer’s rally or of the September bear trend. Traders will continue to look for reversals every few days until there are 2 or 3 consecutive big trend days in either direction.
Overnight EURUSD Forex trading
The 5 minute chart of the EURUSD Forex market reversed up from below yesterday’s low. The bears needed a 2nd consecutive big bear day today. Traders knew that was unlikely, and they therefore bought the breakout below yesterday’s low, despite yesterday being a big bear day. This is trading range price action.
The bulls want today to close near its high so that today will be a credible buy signal bar for tomorrow. They hope that yesterday was just a bear trap and that their 3-week rally is intact. They will therefore buy pullbacks today.
The bears know that a big bear day is unlikely at this point. Their goal is simply to stop today from being a strong buy signal bar on the daily chart. They therefore want to sell.
But, day traders are not going to sell until they see the overnight reversal up stall and enter a trading range. Once they see a 20 to 30-pip pullback, they will start to sell rallies for scalps. Until then, day traders are only looking to buy.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
End of day summary
The Emini formed a trading range, had a bear breakout, and then formed a lower trading range. Today was a Bear Trending Trading Range Day. More importantly, it traded below Friday’s high and therefore closed the gap on the weekly chart. This was likely since most of the weekly gaps this summer closed before the end of the week. However, that rally continued up for many more weeks.
Will this rally break to far above the September high? Probably not. The bears want a double top with that high, but will they get a reversal down to below the September low this year? With the strong breakout above the September trading range, the Emini is back to neutral. It might continue sideways up to the election and possibly through the end of the year.
The 4-day rally was strong enough for traders to buy the current 2-day pullback. However, they have not bought yet.
What happens if the Emini trades back below the October 6 top of the trading range? Nothing. The Emini will still be in a month-long trading range. While it would be good for the bears, they need a strong break below that high to convince traders that the Emini is reversing down from a double top. More likely, it will continue sideways.
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.