Pre-Open market analysis
The bulls want the E-mini to finish the year at an all-time high. The E-mini made a new all-time high on Friday, but then became an outside down bar.
The bears hope that the overnight selloff will lead to a gap down. Remember, I have been saying that the E-mini would probably begin a 10% selloff by early January. If today gaps down and closes near its low, traders will begin to believe that this could be the start of the selloff. The bulls hope it is just another 1- to 3-day pullback in its 5-week Small Pullback Bull Trend.
On the Globex chart, there was another all-time high overnight and then today became a 2nd consecutive outside bar. Consecutive outside bars is an OO (outside-outside) Breakout Mode pattern. If tomorrow trades above today’s high, traders will look for a measured move up based on today’s 100-point range. If tomorrow or any day in the next few days trades below today’s low, they will look for a 100-point drop below over the next few days.
Tesla (NASDAQ:TSLA) could be a bellwether
Tesla was added to the S&P500 before the open today. It is extremely overbought. Just before the close on Friday, institutions with funds that track the S&P were forced to buy it. The firms that bought it over the past month have quick, big profits. They might take those profits today. If there is a strong reversal down this week, Tesla might be putting in its high for the next several years.
Since Tesla is a $600 billion stock, it could be a bellwether for the market. If it starts to sell off, traders might take profits on all of their positions going into the end of the year.
Can the opposite happen? Can the E-mini race up from here? Pretty much anything has a 30% chance. This is an example. It is more likely that the E-mini will begin to pullback either this week, or within the next few weeks.
Overnight E-mini Globex trading
The E-mini is down 60 points in the Globex session and it will probably gap down. However, it rallied 50 points up from the Globex low. Big Down, Big Up creates Big Confusion. Confusion typically results in a trading range, and the E-mini has been in a 20-point range for the past 3 hours in the Globex session. This increases the chance that today will have some trading range trading. That means at least one swing up and one swing down.
Today will also likely gap to below the bottom of the 5-week bull channel. I have been saying that a bull channel is a bear flag. I wrote that markets usually break below bull channels, and evolve into trading ranges. This could be the start. A common target for the bottom of the range is the beginning of the bull channel. That was the November 10 low at around 3500.
The more today closes below its midpoint and the more bear bars over the next week, the more traders will expect a pullback to below 3500. But if today closes above the midpoint, traders will expect more sideways trading. If they the get a bull bar closing near its high this week, the bulls will hope that the selloff will be a bull flag and that the year will close on the high.
Friday’s 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 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 E-mini.