- o The S&P 500 Futures formed a strong bull trend bar yesterday, closing near its high.
- o The market is around 140 points away from the 20–period moving average. This is climactic behavior late in a trend that began in early November.
- o The bulls will likely not be eager to buy this far from the average price (moving average). This increases the odds of a pullback to the moving average.
- o The moving average is a reflection of the average price. Traders buying right now are being forced to pay a premium. Traders are happy to pay a premium when the momentum is strong, and it is not late in a trade.
- o The bears hope they will get a sharp selloff down to the moving average, and a breakout below it.
- o More likely, the downside will be limited. However, as stated above, the odds favor a test of the moving average.
- o Last Friday formed an inside bar. Inside bars are triangles and often magnets, especially late in a trend. The odds favor a test of last Friday’s high within the next few days.
- o There are momentum bulls who will stay long until there is a reason to exit longs. One reason would be a bear bar closing near its low or a series of 2-3 consecutive bear bars.
- o If the bears get a strong bear close, it could trigger a series of bull stops, leading to a downside breakout. Those bulls selling out of longs are momentum bulls, protecting profits.
- o If the bears get strong follow-through selling, more momentum bears will establish short positions.
- o Overall, traders should assume that the market is going to go sideways to down and test the December 15th high (4,779.5).
- o Emini is down 7 points in the overnight Globex session.
- o Today will probably close below the open of the day. This means traders should pay close attention to the open as it will likely be a magnet most of the day.
- o If the bulls get a rally above the open, traders will access the strength of the move. If it looks like a leg in a trading range, with gaps close, traders will bet against the bulls.
- o Traders should assume that today will have a lot of trading range price action on the open. There is only a 20% chance of a trend from the open, which means there is an 80% chance of a trading range open.
- o Traders should consider not trading the first 6 – 12 bars unless they are comfortable with limit orders and making quick decisions.
- o Most traders should focus on catching the opening swing that often begins before the end of the second hour. This means traders should look for the market to form a double top/bottom or a wedge top/bottom. It is common for one of the patterns mentioned above to form before the swing trade begins.
Emini 5-minute chart and what to expect today
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.