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Emini July reversal should lead to 15% correction back to 2020 close

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Trading Update: Tuesday July 20, 2021

Emini pre-open market analysis

Emini daily chart

  • Big gap down and big bear bar with possible Emini July reversal. This is after a big bear bar on Friday. However, yesterday closed above the middle of its range, increasing the chance of a further bounce today.
  • It is a weak buy signal bar for today. That means there might be more sellers than buyers not far above its high.
  • The bulls want the selloff to be like all of the others over the past year. There have been many sharp selloffs, but each one led to resumption of the bull trend.
  • The selloff came after a streak of 11 consecutive days in a rally without a pullback, which was an extreme buy climax. The streak ended on July 6.
  • I said many times over the past 3 weeks that a streak like that increased the chance of sideways to down trading for several weeks, and it could lead to a correction.
  • We have had the sideways to down trading for a few weeks, but need more information before deciding if the selloff will grow into a correction. More information means more bars.
  • Gap down on weekly chart, triggering weekly sell signal.
  • I have written several times over the past month that July should be a bear bar on the monthly chart. This is because a bull bar in July would be the 6th consecutive bull bar, and there have not been 6 consecutive bull bars in 10 years. Therefore, it would probably not happen now.
  • Furthermore, I have been saying that if July is a bear bar, there would probably be a 2- to 3-month selloff of 15 – 20%.
  • 10% correction = 3946, 15% = 3727, 20% = 3507.50, close of 2020 = 3729.25. Market usually will test close of last year at some point after 1st quarter.
  • A couple consecutive bull days will shift the odds back in favor of the the bull trend resuming.
  • Traders would then see yesterday as simply a Breakout Test of the May 7/June 1 double top, the 50-day MA, and the bull trend line.
  • If today is a bull day, traders will need to see if the bear trend resumes on Wednesday.
  • If the Emini is early in a bear trend on the daily chart, traders will sell 1- to 3-day rallies, even if they are strong. This is the opposite of the past year when the Emini was in a bull trend. I kept saying that traders would buy 1- to 3-day selloffs, even when they were strong. They might buy this one as well.
  • What is likely today? The selloff has been extreme and therefore exhaustive. The Emini should stop going down for a few days.
  • Also, even if the selloff continues down for 20%, it will probably lead to a trading range for a couple months.
  • Trading ranges disappoint bulls and bears. Follow-through is typically bad. Therefore, today will probably disappoint the bears who want a bear trend. That means today will probably not be a strong bear day.
  • Traders will need to see what happens over the next few days before deciding if the selloff is the start of a 15% correction or just a sharp pullback in the bull trend. That uncertainty increases the chance of a 1- or 2-day bounce and then sideways trading for a few days.

Emini 5-minute chart and what to expect today

  • Emini is up 8 points in the overnight Globex session.
  • Yesterday reversed up from the 50-day MA, the breakout point on the daily chart, and the bottom of the bull channel. The bulls hope it is the end of the 3-day pullback.
  • Might gap up today, which would create 1-day island bottom. Island tops and bottoms are minor reversal patterns.
  • Should test magnets above. These are the open of the month, the 4300 Big Round Number, Friday’s low (top of gap), and a 50% pullback from the all-time high.
  • Bull want breakout above that resistance, but the Emini will more likely enter a trading range around the open of the month. It could last until the month ends next week, which is after next Wednesday’s FOMC announcement.
  • If the selloff is the start of a bear trend, the rally should end by midday tomorrow and the selloff should then resume. Confusion is more likely, which means a small trading range on the daily chart.
  • Today will probably not be an outside down day since yesterday’s range was fairly big and yesterday reversed up from major support on the daily chart.

Yesterday’s Emini setups

Emini wedge bottom and weak bull trend reversal - possible Emini July reversal

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 wedge bear channel but no reversal up
  • Forming 2nd consecutive wedge bottom, but no reversal up and there are magnets below.
  • Sideways and slightly down in July and now at apex of wedge so Breakout Mode.
  • Bears want break below July’s range and measured move down to below March low.
  • Bulls want test of top of range at June 25 high.
  • Bear trend since Late May and still forming minor lower highs and lows so lower prices are slightly more likely.
  • But, if bulls get a couple big bull days, odds will shift in favor of a rally up to the June high.
  • Reversing every few days and not moving far increases chance of more sideways to slightly down.
  • Since in Breakout Mode and at Apex of wedge, increased chance of breakout this week or next.

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

Emini small pullback bull trend from the open

End of day summary

  • Very strong Small Pullback Bull Trend for the 1st half of the day, and then entered a trading range.
  • Closed the gap below Friday’s low.
  • Broke back above open of month so July again has bull body.
  • Since July would be 6th consecutive bull bar on monthly chart and that has not happened in 10 years, probably will not happen this time.
  • Emini might get stuck around open of month for remainder of month, but today’s momentum up was strong enough for traders to expect higher prices this week.
  • Buy climax day on 5-minute chart so 75% chance tomorrow will have at least a couple hours of sideways to down trading that starts by end of 2nd hour.

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 opens at 6:30 am PT, and closes 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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