Emini bull leg in trading range after tradable bottom
Today opened with a big gap down to the 60 minute EMA and the open of the week. It reversed up strongly and then down strongly. Traders do not want to use stop entries when the bars are huge. This is therefore a trading range open. Traders expect breakouts to reverse. If today falls below yesterday’s low, there will probably be buyers below.
At the moment, the Emini is Always In Long from an Opening Reversal up from support. However, the bulls do not yet have consecutive big bull bars closing on their highs. Therefore, the direction of the 1st swing is not yet clear.
Today is a 2nd consecutive inside day so far. There will probably be sellers above yesterday’s high and buyers below its low. These big early reversals and huge bars in a sideways market make a trading range day likely.
Pre-Open market analysis
The Emini 5 minute chart yesterday was a bull trending trading range day. The odds are that it will continue to work higher for another week. However, there might be pullbacks along the way. This means that there will be buyers below yesterday’s low.
Overnight Emini Globex trading
The Emini sold off 50 points in the past 10 minutes and is down 30 points on the session. I have said that the rally up to last week’s lower high would have pullbacks. The Emini is now around yesterday’s low.
The bears want the bear trend on the daily chart to resume. More likely, the Emini is in a trading range and Friday will be the start of a bull leg in the range. Consequently, a selloff below yesterday’s low will probably only last a day or two. Traders will therefore look for setups for a swing up to above last Wednesday’s high of 2726.75.
There will probably be more buyers than sellers below yesterday’s low. Therefore, the pullback will probably only last a day or two before the bull leg in the trading range on the daily chart resumes.
Because the daily chart is probably in a 1 – 3 month trading range, the 5 minute chart will have more trading range price action. As a result, the breakouts up and down will have less follow-through. They bulls and bears will take quicker profits. Traders should expect swings up and down every day.
Yesterday’s setups
EURUSD in sell zone for 2nd leg down
The EURUSD daily Forex chart has retraced about 50% of its 2 week selloff. It is therefore in the sell zone for a 2nd leg down after a wedge top at resistance. If instead the rally breaks above the January high, there is only a 40% chance that the breakout will be the start of a new leg up. There is a 60% chance that it would reverse down for 2 legs.
Traders will begin to look to sell for a swing down to below the January 18 low at around 1.2200. If there is a 2nd leg down and it forms a double bottom with last week’s low, they will look to buy. This is because the 2 legs down is the minimum expectation. Once met, the bulls will be willing to buy again, hoping for a successful breakout above the January high. Yet, the chart more likely will continue in its trading for at least another month. As a result, the odds are against a big move up or down until then.
Overnight EURUSD Forex trading
The EURUSD 5 minute chart just sold off 70 pips in the past 5 minutes. If the day closes in this area, it will be a sell signal bar on the daily chart for a lower high. Traders expect the 4 day rally to fail because the wedge top on the daily chart should have at least a small 2nd leg down. However, yesterday was a bull day on the daily chart. It is therefore a low probability sell signal bar.
The selloff of the past 5 minutes traded below yesterday’s low. Since yesterday is a low probability sell signal bar, there will probably be buyers here. This is despite how strong the selloff has been. While this might be the start of the 2nd leg down, it might pause here because the sell signal bar was bad. If so, it might drift up and form a micro double top with today’s high within a few days. That would be a higher probability sell for a swing down to below 1.2200.
Today is an outside down day. Outside days usually do not go far below yesterday’s low. While the selloff has been very strong, the odds are that it will not go much lower. The bulls will return by the end of the day for at least 1 – 2 more days up to a micro double top with today’s high.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
Today was another good day for the bulls. The odds are that this rally will continue to above last week’s lower high and to around 2780. This is because January was a reasonable buy month, and 2780 is the midpoint. It is therefore the middle of the reasonable buy.. However, the rally is still likely a bull leg in a 1 – 3 month trading range. Therefore, the bears will look to sell around 2750 – 2780 for a trade down.
See the weekly update for a discussion of the price action on the weekly candlestick chart and for what to expect going into next week.
apologies, i was unclear, i meant that on the 2/13 chart (not 2/14), there seemed to be a buy bar at about 940/945 that i cannot see why you would not have taken given the action to the left. You identified a buy at about 1015 which i understand, but 940 looked good. Just trying to see what i am missing. thanks
If I am looking at the same chart, that buy was a doji in a 5 bar bear micro channel, which had 2 strong bear bars. I prefer to wait for a 2nd entry in that situation.
Al, I noticed that price often returns to a recent Stop Entry location and reacts from there. For example if you look at your “yesterday’s setups” chart. If I had missed the stop entry and placed a limit order at the exact same place with a stop at the low of the signal bar, I would have made money every time except one or two. And the market goes further on that second entry (when going with trend). I see this all the time.
Could you explain why this happens? And whether it’s a good idea to try to trade this way?
Yes, that is common and it makes sense. Markets like to test. For example, if there is a reasonable buy on a stop above a bar, the market often comes back to that exact price to see if the bulls will buy again. That is a type of breakout test and I talk about it in the course. If it falls 5 ticks below, the probability of a 2nd leg up or a bull trend becomes less. If it misses the entry by 1 tick, then the breakeven bulls were aggressive and prevented their stop from being hit. This often leads to a swing up.
The Euro will probably run to 1.27 at least before it pulls back don’t you think? It isn’t even overbought on the monthly timeframe yet??
The Euro is in a bull trend on the daily and weekly charts, but at resistance on the monthly chart. In addition, the daily chart is probably in an early trading range. 1.27 is not that far above the January high and I would not be surprised if the current rally gets there.
The monthly chart might be forming a wedge bear flag. The bulls need to get maybe 500 pips higher before the chance of a wedge becomes much less.
I think the odds are that the 1st breakout above the January high on the daily will fail and at least pull back. A reversal might go back down to last week’s low. However, there is no clear top yet, and therefore the odds still favor higher prices, even if there is a test of last week’s low first.
Hi Al,
In E-mini , we are making a bear flag on hourly chart and are also near 50 percent pullback region (that is about 2702 value). If i compare this to your comment about EUR-USD Chart that after 4 days of rally to about 50 percent zone and leg 2 is probable . Both Charts are identical
Just to complete my question , can we have leg 2 down from 2702 in E-Mini and another new low before we actually go to last week wednesday high of 2726 ? what are the odds. Thanks a ton for your amazing insight.
The daily charts of the Emini and EURUSD are similar. The monthly charts are opposite. The Emini is in strong bull trend on the monthly chart. I have been writing for months that the 1st pullback would last 1 – 3 months and then be followed by a new high.
Because the Emini is so much more bullish, the current rally could easily go above last week’s lower high before there is a pullback. Furthermore, the odds are that the low is in. Therefore, the pullback will probably be a higher low and lead to a new high.
The EURUSD monthly chart is forming a wedge bear flag. The odds are that the current rally on the daily chart will have a hard time breaking far above the current high. Therefore, the odds of more sideways to down are higher than in the Emini. Furthermore, the resumption of the bull trend on the weekly chart is less certain because of the bear trend on the monthly chart. The EURUSD bulls might have to go sideways for a few months before they are able to get another leg up above the January high.
referring to the 5 min E mini chart
why was the 945 bull bar not a buy at that point?
I did not mark everything, I try to mark setups that a trader has a reasonable chance to spot real-time, which means they have good signal bars. Since today was a Small Pullback Bull Trend, everything was a buy. If you notice, I did not show any stop entry sells, which is unusual.