S&P E-Mini Market Analysis
- The S&P 500 E-Mini formed a strong downside breakout last Friday that is likely to get a second leg down. However, the daily chart is in the middle of a trading range.
- Because the selloff down to last Friday’s low is near the midpoint of the August rally, both bulls and bears began buying, anticipating a pullback to happen soon.
- At the moment, the market is deciding how deep the pullback will be for the bears.
- The problem that the bears have is that the channel up to the August high is tight, which increases the risk that the market will have to test the August high.
- This means that the pullback from the September selloff could be very deep.
- Even if the market reaches the August high before the bears get their second leg down, the odds will still favor a test of the September 6th close.
- The issue for the bears selling the September 6th close is that the risk-reward is bad, and the probability is not high enough to justify it. Whenever the risk-reward on a trade is considered a bad risk-reward.
- This means that bears who are selling down here have to find a way to increase their probability of making money. One method would be to sell more near the August highs. This increases the risk that there will be bears selling near the August highs if we get there, betting on a trading range.
- Overall, the daily chart is probably going to go sideways for the next several days. While the odds favor the bears getting a second leg down after the September selloff, the risk-reward makes the trade difficult because the market is in the middle of a trading range on the daily chart.
What to Expect Today
- Today is going to open near the close of yesterday.
- The Globex market formed a downside breakout that failed during the 8:30 AM EST report bar. The Bulls managed to get a strong reversal over the next several bars.
- The bulls are hopeful that the reversal from the 8:30 AM EST report bar will lead to a strong bull trend day.
- While it is possible that the bulls form a strong bull trend day during the U.S. Session, the bulls have to break out above the two-day trading range. Otherwise, the risk for the bulls is a failed breakout of the range.
- The open will probably go sideways to up because of the recent Globex rally. This increases the risk that any selloff on the open will be brief and lead to a trading range.
- Traders should expect the 8:30 AM EST Globex rally to get a second leg up.
- As always, traders should wait for clarity on the open. If today is going to form a strong bull trend day, there will be plenty of time to enter once the trend has been established.
Yesterday’s E-Mini 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 E-Mini.