Pre-Open Market Analysis
The Emini sold off yesterday on the open. It formed a big bear bar on the daily chart. Even though there was a tail below, it broke below the 2 month bull trend line.
Furthermore, the bar was a surprise. A Bear Surprise Bar typically will have a 2nd leg sideways to down. But when it comes in a strong bull trend, there is often a rally to a lower high 1st. The rally can last 5 – 10 bars and be strong. However, traders should still expect a 2nd leg down.
Since every bear bar for 2 months had bad follow-through, today is particularly important. Has the market changed its behavior? If today is a 2nd consecutive bear day, especially a big bear day closing on its low, traders will start to conclude that the Emini will pull back for a couple weeks.
I said throughout November that a 2 week pullback of 50 – 100 points was likely to begin in November. It might have begun last week.
Traders must remember that a strong reversal down will still typically be minor when the bull trend is as strong as this one has been.
This week fell below last week’s low. It is now the 1st pullback in 9 weeks on the weekly chart. The bulls have been so aggressive that they were not waiting to buy pullbacks on the weekly chart. They now finally have the opportunity, and many will take it. Consequently, this pullback will probably just last a week or two. Traders should then expect a new high.
Overnight Emini Globex Trading
The Emini is down 23 points in the Globex session. It will therefore open below yesterday’s low. A gap down will form an island top with last week’s gap up. But most island tops and bottoms are minor reversal setups and are no more important than any other reversal pattern.A big gap down increases the chance of a trend day. If there is a trend, a bear trend is more likely.Where there is a big gap down, the Emini is far below the EMA. Many bears do not want to sell too far below the average price. That reduces the chance of a big bear trend of the open. They prefer to wait for the Emini to go sideways to up until it gets closer to the EMA. They then look to sell a reversal down from a double top or a wedge rally near the EMA.However, the gap down also means that traders see the price as having been too high. They therefore usually will sell the 1st rally. This increases the chance of a trading range open for the 1st 1 – 2 hours. In addition, early trading range trading reduces the chance of a big trend and it increases the chance of more trading range trading later in the day. Consequently, most big gap opens do not lead to the strongest trends.
Yesterday’s Setups
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. I rarely also show limit order entries and entries on the close of bars. Buyers of the Brooks Trading Course and Encyclopedia of Chart Patterns have access to a much more detailed explanation of the swing trades for each day.
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.