Yesterday was a big bear day for the E-mini and it broke below Friday’s low. And since Tuesday was the final trading day in November, the month becomes a bear bar closing near its low, a monthly sell signal on the monthly chart. Following the October monthly chart— October was an outside up month after an outside down September—that created an OO setup, which is a Breakout Mode pattern.
The buy signal triggered when November traded above October’s high. But now November is a sell signal bar for a failed OO buy signal. Unless today’s big gap up leads to a strong rally over the next few days, December should trade below the November low to trigger the sell signal.
Also, September was the third attempt to reverse down on the monthly chart since the pandemic crash. It was therefore an attempt at a parabolic wedge top.
I said at the time that there typically would be a second bear bar within a couple months. November is 2 months later, and it was a bear bar, as was expected. This met the minimum objective of the bears. The bulls hope December does not go below the November low. Instead, they will try to have it go above the November high and resume the bull trend on the monthly chart.
Is this the start of a correction? With 2 of the past 3 months having bear bodies and with the E-mini turning down from the top of the bull channel on the weekly chart, traders know that there is an increased chance that December will be sideways to down.
If there is strong selling over the next week, the selloff could test the October low. That is the bottom of a trading range that began in July, and about a 10% correction. As I wrote the other day, if the E-mini gets there, it will probably bounce. But the rally would likely be a lower high. At that point, traders would begin to talk about a head and shoulders top where the Sept. 2 high was the left shoulder.
What is most likely over the next few weeks? How far down can this go?
I mentioned that the selloff would probably test below the Sept. 2 high, which is just a little below yesterday’s low. That was the breakout point of the October rally, and the E-mini might still be in the trading range that began in July. When it is in a trading range, it typically tests beyond breakout points. That low is also at the 50-day moving average, which is another magnet below. A 50% correction is at 4504.00, just above the 4500 Big Round Number.
The yearly chart closes at the end of December. I will show it in January. It is a big bull bar closing near its high. Most big bars have tails on top that come from a small reversal just before the bar closes. That is what might be happening now. But remember, a small reversal on the yearly chart can be a big reversal on the daily chart.
I have said many times that the bears have never had more than a 50% chance of a correction since the pandemic began. That is still the case. They will need several more bear days to get the probability up to 50%. If instead there are a few bull days, the year will probably close on the high.
As I have been saying since the pandemic low, a new high is always at least slightly more likely than a correction because of the strong bull trend on the weekly and monthly charts. That is still true today. However, this rally has been extreme and it should attract some protracted profit taking before too long. If December sells off, it could create a correction on the daily chart while being just a 2-bar pullback on the monthly chart.
E-mini 5-minute chart and what to expect today
E-mini is up 55 points in the overnight Globex session. A big gap up increases the chance of a trend day. The odds are slightly greater that the trend will be in the direction of the gap (here, up). When there is a big gap up, the E-mini is far above the EMA.
Bulls do not want to pay a price that is far above average unless the bars are all above average bullishness. Therefore, if there is not a series of strong bull bars on the open, there will probably be an opening trading range for an hour or two. The bears will look to sell a double top or a wedge top. The bulls will look to buy a double bottom or wedge bottom near the EMA.
Can today be a big bear day and trigger the monthly sell signal?
It is unlikely when there is a very big gap up from a sell climax. The bears who sold yesterday will look for any selloff today to buy back their shorts with a smaller loss.
Most likely, the strong selling over the past week will transition into a trading range for a few days. Traders will then decide whether to continue up to a new high by the end of the year or resume down to below last month’s low and trigger the monthly sell signal.
Even if today is a trading range day, the daily ranges lately have been very big. That will probably result in at least one swing up and one swing down today.
Yesterday's E-mini setups
The chart above presents 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 E-mini.