I have been saying for a month that 3400–3500 was the sell zone and that many traders wanted to wait for a break above the Sept. 16 high before selling. Yesterday briefly broke above that high and then collapsed.
There is a wedge rally over the past 2 weeks to a double top with the Sept. 16 high on the daily chart. That is a common sell setup. Yesterday was an outside down bar and therefore a sell signal bar. Not only was yesterday outside down, it closed below Monday’s low. That increases the chance the the resistance of the Sept. 16 high will hold.
The bulls might try for another test of the Sept. 16 high before the bears get their 2nd leg down from the Sept. 3 all-time high, but traders will look to sell rallies.
Trends Need Follow Through
It is a mistake to assume that one day makes a trend. The E-mini has been in a trading range for over a month and it might continue sideways until the US election. For example, if it drifts down 300 and then bounces, the bulls will see a head and shoulders bull flag on the daily chart. They will buy, hoping to break above the neck line, which is yesterday’s high.
Today is important. Trends panic traders. If today is a big bear day, then the bear trend from the Sept. 3 high is likely resuming. But if today is a bull day, the bears will be disappointed. Disappointment is a hallmark of a trading range. That would increase the chance that the trading range will continue, maybe for a few more weeks.
That July/August streak of 9 consecutive bull bars was an important buy climax. Traders should expect the pullback to fall to at least a little below that July 26 bottom of the streak, which means below the September low.
Overnight E-mini Globex Trading
The E-mini is up 27 points in the Globex session. The day after an outside day is often an inside day. If the bulls can keep today inside of yesterday’s range, today will be a buy signal bar for tomorrow. They will then try again to break above the September 16 lower high within a few days.
The bears want a 2nd consecutive big bear day. But since the E-mini has been in a trading range for 2 months, the bears will probably be disappointed by a lack of strong follow-through selling today.
Most bear trend days make a high early in the day. The bears therefore will try to get a reversal down in the 1st couple hours. If they are unable, today would then probably be either a trading range day or a bull trend day.
Can today be a big bull trend day? That is unlikely after such a strong bear surprise. However, it could be a weak bull trend day and get back above last week’s high. That would undo a lot of yesterday’s bearishness and increase the chance that the 2-month trading range will continue.
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. I do not want the lines to be distracting. If they are longer, I make them dotted. But, they have to be visible, so I make the shorter ones solid. 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.
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.