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Emini minor reversal in December rally

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Trading Update: Friday December 10, 2021

Emini pre-open market analysis

Emini daily chart

  • After a big 3-day rally to near the all-time high, the Emini yesterday was a small bear day closing near its low. A minor reversal in December rally.
  • Yesterday is a sell signal bar for a lower high major trend reversal.
  • However, after a Bull Surprise on Monday and Tuesday, traders expect at least a small 2nd leg sideways to up. They will buy a 1- to 3-day selloff, and this sell signal is therefore minor.
  • How high can this rally go before there is a correction lasting more than a couple months and falling more than 10%? Years. Just look at the rally that began in 1995.
  • Picking tops in strong trends is a losing bet. It is always more likely that every reversal down will soon be followed by a new high. That is true here as well.
  • I have a friend who is not very bright, but he always buys every 10% selloff and he never sells. He has been doing this for 40 years and is now quite rich. Maybe he is brighter than I think!
  • There are targets around 4800 and 4900, and 5000 is a very Big Round Number.
  • Reversals always end at resistance, but they usually go through many resistance levels before ending.
  • But with the market up 100% in less than 2 years, it is likely to correct before going much higher.
  • The weekly chart triggered a High 1 bull flag buy signal when this week went above last week’s high.
  • But last week was a big bear bar and it was the 2nd consecutive big bear bar. That is why I said last week that it is a weak buy signal, even though the bull trend is strong. I mentioned that there might be more bears eager to sell above the bad buy signal bar than bulls willing to buy.
  • The Emini spent the last 3 days oscillating around last week’s high as it decides whether to break to a new high this year. The bulls would like this week, when it closes today, to close near the high of the week and above last week’s high. That would increase the chance of higher prices next week.
  • The bears would like this week to be a bear bar, but that is unlikely. At a minimum, they would like this week to close below last week’s high.
  • It would be better for the bears if the week closed below the midpoint of the week. The bigger the tail on top of this week’s candlestick, the lower the probability of higher prices next week.
  • Therefore, last week’s high might be an important magnet today, especially in the final hour.
  • On the monthly chart, the bears want Dec to close near its low and below the Nov low. That would increase the chance of lower prices in Jan.
  • I have said many times that the bulls want the year to close at a new high. If that happens, December will be an outside up month, like October. That would increase the chance of at least slightly higher prices in January.
  • But if there is a new high and January becomes a bear bar, there would be a micro wedge on the monthly chart (which would correspond to a traditional wedge on the daily chart). Traders would then expect sideways to down trading for a month or two.
  • The initial downside target is the October low, which is the start of the 2nd leg up in the wedge. That low is the bottom of the Sept/Oct OO (consecutive outside bars) on the monthly chart.
  • If there is a wedge reversal, it often continues down to where the wedge began. That is not clear, but the May 12 low or the March 4 low are two possibilities.
  • A big correction like that is unlikely over the next few months, but if there is a strong break below the October low, that is the next support.
  • By this month going below the Nov low, this month triggered a sell signal for a failed breakout above the OO. The bulls are trying to erase this sell signal by having December or January going above the November high. The OO bulls would then conclude that their OO buy signal is back on track.
  • Before this week’s rally, I said it was slightly more likely that the Emini would reverse up and test the old high than it would break strongly below last week’s low. This week’s strong rally increases the probability further.
  • It is important to note that the Emini’s rally has lasted an extremely long time without more than a 10% correction. Traders should watch for topping patterns and a transition in to trading range for a least several months.
  • I mentioned above that if there is a new high in Dec or Jan and then a reversal, there would be a wedge top. If there is then a series of bear bars, traders will look for a couple legs sideways down down. As a guide, they should expect the reversal to last about half as long as the wedge. Since the wedge began this summer, a reversal down could easily last a couple months.

Emini 5-minute chart and what to expect today

  • Emini is up 33 points in the overnight Globex session.
  • Possible gap up above yesterday’s high so increased chance of trend day. If there is a trend, up is more likely.
  • Bulls want breakout above 4700 Big Round Number and all-time high.
  • Bears want reversal down from double top with Wednesday’s high.
  • Big gap up from yesterday’s close so increased chance of trading range open.
  • Bulls will look to buy a double bottom or wedge bottom near the EMA.
  • Bears will look to sell a wedge rally or double top.
  • If there is a series of strong trend bars in either direction, traders will expect a trend from the open. However, there is an 80% chance of a trading range for the 1st hour or two.

Yesterday’s Emini setups

Emini late bear breakout below trading range. Likely minor reversal in December.

Here are several reasonable stop entry setups from yesterday. I show each buy entry with a green rectangle and each sell entry with a red rectangle. Buyers of both the Brooks Trading Course and Encyclopedia of Chart Patterns have access to a much more detailed explanation of the swing trades for each day (see Online Course/BTC Daily Setups).

My goal with these charts is to present an Always In perspective. If a trader was trying to be Always In or nearly Always In a position all day, and he was not currently in the market, these entries would be logical times for him to enter. These therefore are swing entries.

It is important to understand that most swing setups do not lead to swing trades. As soon as traders are disappointed, many exit. Those who exit prefer to get out with a small profit (scalp), but often have to exit with a small loss.

If the risk is too big for your account, you should wait for trades with less risk or trade an alternative market like the Micro Emini.

EURUSD Forex market trading strategies

EURUSD Forex daily chart

EURUSD Forex triangle in bear trend so breakout mode
  • The EURUSD Forex market has been in a trading range since November 17. There is both a lower high and a higher low, and you could call this a triangle.
  • That does not change things because the trading range alone is a Breakout Mode pattern. That means there is a 50% chance of a successful bull breakout, a 50% chance of a successful bear breakout, and a 50% chance that the 1st breakout up or down will fail.
  • I have been saying that because the EURUSD has been in a trading range for 7 years, the odds of more reversals are greater than those of a breakout of the 7-year range.
  • The current leg down has lasted a year. While it could last longer, it will probably reverse up for at least a couple months before breaking below last year’s low and the 2017 low at the bottom of the 7-year range.
  • The bulls want this triangle to be a base and the start of a rally up to the November 9 high, which is the start of the most recent leg down and therefore a magnet.
  • If there is a bear breakout, the 3-week trading range is a good candidate for a final bear flag. That means there is an increased chance of a reversal up from around a measured move down below the 3-week range.
  • Currencies have a tendency to reverse around the 1st of the year. That increases the chance of a breakout above the 3-week triangle soon or of a reversal up after a bear breakout.
  • Since the bear trend has been strong on the daily and weekly charts (it is just a pullback to the middle of the 7-year range on the monthly chart), the odds always continue to favor at least slightly lower prices.
  • However, because of what I wrote above, traders should be aware that a 2-month reversal up can start at any time.

Summary of today’s S&P Emini futures price action and what to expect tomorrow

Emini bill trend reversal after wedge bottom

End of day summary

  • After big gap up, Trading Range Open and test of EMA likely. Bulls looked to buy wedge bottom or double bottom.
  • Reversal down from above yesterday’s high, but reversed up form wedge at just above yesterday’s low.
  • Then Higher low major trend reversal.
  • Continued up in bull trend reversal to new high of day.
    The bears want a double top with the November high, or a wedge reversal from just above that high. More likely, the Emini will continue up to the end of the year.
  • With today closing near its high, there is an increased chance of gap up on Monday. That would create a gap up on daily and weekly charts.
  • Bulls trying to get December to go above November’s high. It probably will. December would then be an outside up month, which would increase the change of higher prices in January.
  • If December closes near its high, January could gap up on the daily, weekly, monthly, and yearly charts.
  • But if there is a new high, which is likely, and then a reversal, there would be a micro wedge top on the monthly chart and a wedge top on the daily chart.
  • That could lead to a pullback for a couple months, and possibly a trading range for several months.
  • If there is a reversal, the 1st target would be the most recent major higher low, which is the October low.
  • At the moment, December will likely continue higher. It could finish the year as high as 4800 to 4850.

See the weekly update for a discussion of the price action on the weekly chart and for what to expect going into next week.

Trading Room

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 Time

When I mention time, it is USA Pacific Time. The Emini day session charts begin at 6:30 am PT and end at 1:15 pm PT which is 15 minutes after the NYSE closes. You can read background information on the market reports on the Market Update page.

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