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E-mini Formed A Big High 1 Buy Signal Bar For A Possible Yearend Rally

By Al BrooksStock MarketsDec 22, 2020 10:15AM ET
www.investing.com/analysis/emini-formed-a-big-high-1-buy-signal-bar-for-a-possible-yearend-rally-200548687
E-mini Formed A Big High 1 Buy Signal Bar For A Possible Yearend Rally
By Al Brooks   |  Dec 22, 2020 10:15AM ET
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The E-mini yesterday sold off to the bottom of the 3-week trading range and reversed up strongly. The selloff was also a test of the open of the month and last week’s low.

Yesterday is a High 1 buy signal bar for today. The bulls want the year to close on its high. They then want 2021 to gap up to a new high. That would create a gap up on the yearly chart, which might not have ever happened before in the history of the stock market (I have not checked).

The day after a buy climax day usually has at least a couple hours of sideways to down trading that begins by the end of the 2nd hour. There is only a 25% chance of a 2nd strong bull trend day. If today is a bull trend day, it will probably be a weaker type of bull trend, like a broad bull channel, or a Trending Trading Range day.

Can today be a strong bear day? While its always possible, a selloff today would more likely lead to a trading range day and not a bear trend.

Overnight E-mini Globex trading

The E-mini is up 6 points in the Globex session. The bulls want s resumption of yesterday’s strong rally. At a minimum, they want today to go above yesterday’s high. That would trigger a buy signal on the daily chart.

But yesterday had a big tail on top and the E-mini is back in the middle of its 3-week range. This is not a strong buy setup on the daily chart, which reduces the chance of a big bull trend day.

Yesterday rallied strongly, but was sideways for the final 4 hours. Today will probably open in yesterday’s late trading range. But with yesterday’s rally being so strong, traders expect at least some trend resumption up today. With the E-mini closing near yesterday’s high, traders expect today to trade above yesterday’s high. That would trigger the buy signal on the daily chart.

However, yesterday had a huge range. Traders who buy above have a stop far below. Many traders do not want to risk too much, especially in a trading range. That reduces the number of bulls who will buy aggressively above yesterday’s high. Also, as I wrote above, the day after a climactic rally typically has at least a couple hours of sideways to down trading that begins by the end of the 2nd hour. That further reduces the chance of a big bull trend today.

Yesterday’s pullbacks were small. The bulls were relentless. That makes a strong bear trend day unlikely.

Traders expect today to test yesterday’s high, not form a bear trend day, and be either sideways or have a bullish bias. However, we are at the end of the year, and the year has been incredibly strong. That increases the chance of a strong trend up or down in the remaining days of 2020. It is more likely that the E-mini will wait for next year before deciding on the direction of the breakout of the 3-week range.

Yesterday’s setups

Emini 5 Min Chart
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 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.

E-mini Formed A Big High 1 Buy Signal Bar For A Possible Yearend Rally
 

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E-mini Formed A Big High 1 Buy Signal Bar For A Possible Yearend Rally

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Comments (1)
Guidothekiller pimp
Guidothekiller pimp Dec 22, 2020 1:37PM ET
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Thanks. I bought some calls Friday and rolled them all near yesterday's low. Looking decent right now and hoping for a bull trend before the middle of next month. Thanks again.
 
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