E-Mini Bulls Likely to Use First Reversal to Exit Longs

S&P Emini pre-open market analysis

Emini daily chart

• The S&P 500 Futures gapped up and rallied, forming a doji bar on the daily chart. There were bulls who bought below May 22nd and got trapped on the following bar. These bulls will likely use first reversal to exit longs (or any bounce) with a smaller loss.
• While the bears did an excellent job getting selling pressure with the recent four-bar bear microchannel that ended on May 24th, the selloff was within an overall trading range.
• This means that the market may find sellers around yesterday’s close.
• The bears want a second leg down from the selloff that ended on May 24th; however, yesterday’s gap up lowers the probability for the bears.
• The market is in the middle of a trading range that has lasted almost two months. This means that traders should assume that the market is in breakout mode and that the directional probability is close to 50% for both the bulls and the bears.
• If the bulls or the bears had a probability advantage, the market would not be going sideways in the middle of a large trading range.

Emini 5-minute chart and what to expect today

• Emini is up 11 points in the overnight Globex session.
• The CPI Report was released at 5:30 AM PT. So far, the report has had a two-bar selloff and a sharp reversal. This is typically trading range price action following a report.
• Traders should assume that the U.S. Open will have a lot of trading range price action.
• Most traders should consider waiting for 6-12 bars. It is common for traders to be too aggressive on the open and take a few losses. The range can often contract after the open, making it difficult for one to make up losses from the open.
• The open is typically probing support/resistance, and if a trader waits for 6-12 bars, they gain the probability of catching the high or the low of the day. In general, traders should assume that the initial move on the open has a 50% chance of a reversal and an 80% chance of a minor reversal.
• Most traders should try and catch the opening swing that typically begins after the formation of a double top/bottom or a wedge top/bottom. This can provide great risk/reward for a trader looking to enter on a stop entry.
• Traders should pay attention to the day’s open, especially if the open is in the middle 1/3rd of the range.
• Lastly, today is Friday, so weekly chart support/resistance is important. It is common to see a surprise breakout late in the day as traders decide on the weekly chart’s close. This means the market gets a surprise breakout late in the day; they must not be in denial.

Yesterday’s Emini setups

SP500-Emini-5-Min Chart

Here are several reasonable stop-entry setups from yesterday. 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.