S&P Emini Pre-Open Market Analysis
- The S&P 500 Emini formed two consecutive bear trend bars on the daily chart, closing below the moving average. This increases the odds that the bears will get a second leg down and that there are sellers above.
- Today, the Bulls want to form a bull reversal bar. The bulls will need a strong reversal bar to convince traders to buy the first reversal up after the two-bar breakout.
- At the time of writing this, the daily chart is 117 points away from the 5,000 big round number. This is such an important round number that the odds are high, and the market will retest it and fall below it. The bears are hopeful that this is the start of the retest.
- The bears need to prevent the bulls from getting a strong bull reversal bar today. Ideally, the bears want today to form another strong bear trend bar, increasing the odds of lower prices.
- The daily chart has been in a bull channel since mid-January. The odds favor the channel converting into a trading range, and the bears want a test down to the January 5th low.
- The market is deciding whether the test of the January low has begun or, more likely, the current selloff is a test of the 5,000 big round number that will lead to sideways trading. This means the odds favor the daily chart finding support at or above the 5,000-round number.
- It is possible that the market gets a vacuum test of the 5,000-round number. The reason for this is that most traders expect a test of 5,000. If bulls know that the market will likely reach 5,000, they might be unwilling to buy before it gets closer to the 5,000-round number.
What to Expect Today
- Emini is up 9 points in the overnight Globex session.
- The overnight Globex market has gone sideways for the past several hours.
- The bulls recently formed an upside breakout around 7:15 AM EST. It is a strong enough breakout to expect a second leg.
- The bulls want today to become a strong bull trend day, creating a bull reversal bar on the daily chart (See reasons above for more details).
- The bears want to prevent this and have become either a trading range day or a bear trend day today.
- Today will probably disappoint the bear on the daily chart, which means that today’s 5-minute chart will probably be a trading range or bull trend day. Less likely, today will be a strong bear trend bar.
- Traders should pay attention to yesterday’s low and close, as both will likely be important magnets during the U.S. Session.
- As always, traders should expect the open to have a lot of trading range price action on the open. This means that most traders should wait for at least 6-12 bars before placing a trade unless they can make quick decisions.
- There is an 80% chance of a minor reversal and a 50% chance of a major reversal after the initial rally or selloff. This means that there is no rush to enter on the initial breakout.
- If today is going to become a bull trend day, there will be plenty of time to enter once the market gets an upside breakout.
- Most traders should try to catch the opening swing that often begins before the end of the second hour, after forming a double top/bottom or a wedge top/bottom. The opening swing often lasts two legs and two hours, providing great risk-reward if a trader waits for the above patterns.
Yesterday’s Emini Setups
Here are reasonable stop-entry setups from yesterday. I show each buy entry bar with a green arrow and each sell entry bar with a red arrow. 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.