- The S&P 500 Futures had a strong bull breakout last Friday; yesterday was a small disappointment bar. Bulls want 2nd leg up.
- Since last Friday was climactic, the odds of sideways trading increased for a day or two.
- The bulls want to get to the May 1st low, where they got trapped by buying a pullback from the rally that ended on May 1st.
- There were likely buyers below May 1st betting on a second leg up following the breakout that ended on April 28th. This means the market will probably return to the May 1st low and allow the trapped bulls out.
- The bulls still have the argument of a measured from the bull breakout of the bear flag that began on March 13th and ended on March 22nd. The target for measured move projects is up to 4,300.
- The bears want the current rally to trap the bulls into buying high and will become a pullback from the April 18th and May 1st double top. Next, the bears want a break below the neckline (April 26th) and for the market to fall for a measured move down to the May 23rd low.
- More likely, the market will try and test the February 2nd high. The odds favor a second leg up following last Friday’s strong bull breakout.
- The bulls will try and get another bull trend bar today. They hope that yesterday was just a pause that will least to higher prices today or tomorrow.
- Overall, the market is probably Always In Long. However, the market is in a trading range; yesterday is a reminder. This means that traders will expect higher prices but will also be prepared for disappointment and more sideways trading.
Emini 5-minute chart and what to expect today
- Emini is down 17 points in the overnight Globex session.
- The market had a climactic bear breakout yesterday (bar 56, 11:10 AM PT). Although it was a 2nd leg bear trap, it was a surprise bar. This meant that the odds favored a 2nd leg down, even if the market exceeded the high of bar 56 first. The Bears got their second leg down during the Globex session last night.
- Today will probably have a lot of trading range price action.
- Traders should be prepared for a rally today. This is due to the daily chart (last Friday). The market might have a brief selloff and form an opening reversal that rallies for several bars.
- Traders should be prepared for a trading range open and for the market to go sideways for the first 6-12 bars. Most traders should wait for 6 bars before placing a trade unless they are comfortable with limit orders.
- There is typically greater than an 80% chance of an opening swing trade that often begins before the end of the second hour. The opening swing often happens after the formation of a double top/bottom or a wedge top/bottom.
- It is important to try and catch the open swing because it provides excellent risk/reward with decent probability. There is also at least a 40% chance that the opening swing will double the opening range.
- The most important thing on the open is to be patient. There are 81 bars to the day and many opportunities to trade. If a trade setup does not look right, pass on it and wait.
Yesterday’s Emini setups
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.