Big gap down and big bear bar with possible E-mini July reversal. This is after a big bear bar on Friday. However, yesterday closed above the middle of its range, increasing the chance of a further bounce today.
It is a weak buy signal bar for today. That means there might be more sellers than buyers not far above its high.
The bulls want the selloff to be like all of the others over the past year. There have been many sharp selloffs, but each one led to resumption of the bull trend.
The selloff came after a streak of 11 consecutive days in a rally without a pullback, which was an extreme buy climax. The streak ended on July 6.
I said many times over the past 3 weeks that a streak like that increased the chance of sideways to down trading for several weeks, and it could lead to a correction.
We have had the sideways to down trading for a few weeks, but need more information before deciding if the selloff will grow into a correction. More information means more bars.
Gap down on weekly chart, triggering weekly sell signal.I have written several times over the past month that July should be a bear bar on the monthly chart. This is because a bull bar in July would be the sixth consecutive bull bar, and there have not been 6 consecutive bull bars in 10 years. Therefore, it would probably not happen now.
Furthermore, I have been saying that if July is a bear bar, there would probably be a 2- to 3-month selloff of 15 – 20%.
10% correction = 3946, 15% = 3727, 20% = 3507.50, close of 2020 = 3729.25. Market usually will test close of last year at some point after 1st quarter.
Traders would then see yesterday as simply a Breakout Test of the May 7/June 1 double top, the 50-day MA, and the bull trend line.
If today is a bull day, traders will need to see if the bear trend resumes on Wednesday.
If the E-mini is early in a bear trend on the daily chart, traders will sell 1- to 3-day rallies, even if they are strong. This is the opposite of the past year when the Emini was in a bull trend. I kept saying that traders would buy 1- to 3-day selloffs, even when they were strong. They might buy this one as well.
What is likely today? The selloff has been extreme and therefore exhaustive. The Emini should stop going down for a few days.
Also, even if the selloff continues down for 20%, it will probably lead to a trading range for a couple months.
Trading ranges disappoint bulls and bears. Follow-through is typically bad. Therefore, today will probably disappoint the bears who want a bear trend. That means today will probably not be a strong bear day.
Traders will need to see what happens over the next few days before deciding if the selloff is the start of a 15% correction or just a sharp pullback in the bull trend. That uncertainty increases the chance of a 1- or 2-day bounce and then sideways trading for a few days
E-mini 5-minute chart and what to expect today
E-mini is up 8 points in the overnight Globex session.
Yesterday reversed up from the 50-day MA, the breakout point on the daily chart, and the bottom of the bull channel. The bulls hope it is the end of the 3-day pullback.
Might gap up today, which would create 1-day island bottom. Island tops and bottoms are minor reversal patterns.
Should test magnets above. These are the open of the month, the 4300 Big Round Number, Friday’s low (top of gap), and a 50% pullback from the all-time high.
Bull want breakout above that resistance, but the E-mini will more likely enter a trading range around the open of the month. It could last until the month ends next week, which is after next Wednesday’s FOMC announcement.
If the selloff is the start of a bear trend, the rally should end by midday tomorrow and the selloff should then resume. Confusion is more likely, which means a small trading range on the daily chart.
Today will probably not be an outside down day since yesterday’s range was fairly big and yesterday reversed up from major support on the daily chart.
Yesterday’s E-mini 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 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. 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.