E-Mini's First Reversal Down Likely to Fail

S&P Emini pre-open market analysis

Emini daily chart

• The S&P 500 Futures formed two strong bull bars last week, reversing the past selloff ending on April 26th. However, the first reversal down likely to fail.
• The rally over the past two trading days is strong enough to likely lead to a second leg-up.
• Some bears sold the high of April 26th and scaled in higher. After last Thursday’s strong bear close, many of those bears began to exit shorts. However, some bears are still short and will use the first reversal down to buy back shorts at a reduced loss.
• There are bulls who are trapped out of a winning trade. The past two trading days were a big enough surprise, and those bulls were unprepared to buy. Since they are trapped out of a winning trade, they will use any pullback to enter a position at a lower price.
• At the moment, the odds favor a second leg up. This means that the market is Always In Long, and traders will look to buy for any reason betting on higher prices.
• At a minimum, the market will probably get above the February 2nd high and likely try and test 4,300.
• The bulls have done an excellent job over the past two trading days. However, they need to continue to impress traders. The market is still at the top of a trading range, and if the market begins to go sideway at resistance (February 2nd high), more and more traders will exit longs, and bears will start to establish shorts.
• Overall, the odds are that the market is probably going higher for at least a small second leg. The bears will need to undo the damage caused by the bulls before the bears have a chance at reversing the market.

Emini 5-minute chart and what to expect today

• Emini is down 8 points in the overnight Globex session.
• The overnight Globex session has been in a tight trading range on the 60-minute chart.
• The bulls want the rally to continue and today to become another intense bull trend day.
• More likely, today will disappoint the bulls as traders begin to take partial profits.
• This means that traders should be open to today becoming a trading range day or a possible bear trend day.
• Since the daily chart has had an intense two-day bull breakout, traders should be open to the possibility of today forming a weak bear trend (broad bear channel) and the bulls getting an upside breakout late in the day as buyers on the daily chart, try and enter at a lower price.
• As I often say, most traders should assume the open will have a lot of trading range price action. This means most traders should consider not trading for the day’s first 6-12 bars.
• Most traders should try and catch the opening swing trade that typically begins before the end of the second hour. It often forms after a double top/bottom or a wedge top/bottom.

Friday’s Emini 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. Buyers of both the Brooks Trading Course and Encyclopedia of Chart Patterns have access to a near 4-year library of more detailed explanations of swing trade setups (see Online Course/BTC Daily Setups). Encyclopedia members get current daily charts added to Encyclopedia.

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.