Pre-Open market analysis
I have been saying for a couple weeks that the February rally looks more like a bull leg in what will be seen as a trading range than a resumption of the 5 month bull trend. Furthermore, I said that the parabolic wedge buy climax on the daily chart made it likely that the Emini would soon reverse down.
The Emini had strong selloffs on the 5 minute chart on Thursday and Friday. This was a possible start of a test down to the January low.
The Emini sold off strongly overnight and it will probably open around the February 10 low. I have been saying that the January low was also a reasonable target. I have said that the target date was by the end of March. It might get there by the end of February.
A couple weeks ago, I said that there was a 30% chance that then Emini could get there by the end of February. I mentioned that the Emini had a bar with a big tail on top on the monthly chart in January and that increased the chance of a 2nd similar bar in February. That increased the chance for a reversal down in the 2nd half of the month.
Weekly Low 2 top sell signal
Last week closed near its low on the weekly chart. It is therefore a sell signal bar for this week. There is a Low 2 top at the top of the bull channel on the weekly chart. This week will trigger the sell signal on the open today by gapping below last week’s low.
I want to repeat one final point that I have said many times. This year will probably be mostly sideways between 2900 and 3500. That is still the case. Since the Emini was getting near the top of that range, there was an increased chance of a near-term pullback. I said that the Emini was probably putting in an early high for the year. The year will probably have several smaller trading ranges lasting a month or two within a big trading range.
Market realizing that the corona virus is greatly under-reported
Finally, as many of you know, I am an MD. I have made the point many times in the chat room that the Corona virus is probably vastly under-reported. It therefore had a greater potential to slow the world’s economy than what the market might be considering. That is why I said in the chat room on Wednesday when the Emini was around 3390 that I went short. I will probably take some profits early today.
Overnight Emini Globex trading
The Emini is down 90 points in the Globex session. There will be a big gap down. A big gap increases the chance of a trend day. When the gap is down, if there is a trend, down is more likely than up. There is always a concern about a crash when there is a huge gap down, but crashes are rare and therefore the chance is small.
The Emini will be far below the 20 bar EMA on the 5 minute chart on the open. Traders do not like selling too far below the average price. That usually reduces the chance of a big selloff on the open.
While some traders might see the selloff as a brief opportunity to buy at a big discount, the 3 day selloff is surprisingly big. Many traders expect some follow-through over the coming days. That will reduce the number of traders willing to buy aggressively on the open.
With both bulls and bears hesitant, wanting more information, the Emini will probably enter a trading range for the 1st hour or two. The bears will look for a double top or wedge top near the EMA. The bulls will look to buy a double bottom or wedge bottom.
Also, if there is a trading range open and then a trend up or down, the trend usually is not especially strong. There is usually more trading range trading later in the day.
Friday’s setups
Here are several reasonable stop entry setups from Friday. 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.
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.