S&P Emini pre-open market analysis
Emini daily chart
- The S&P 500 Futures bulls gave up yesterday on the idea of a strong second leg up following last Thursday and Friday’s bull breakout.
- The Emini is neutral going sideways into FOMC report today.
- The risk of being long following last week’s breakout was that the market was at the top of a month-long trading range.
- Some bulls bought the bull breakout last Friday, assuming the market would break out above the April high. However, they likely used a tight stop and were quick to exit when the market hesitated on Monday or yesterday.
- The bulls buying at the top of the trading range last Friday bought because the momentum was strong; however, when they sensed the momentum drying up, they would exit quickly.
- Some bears sold the April 2nd high, betting it was a bad signal bar in a tight bear channel and likely sellers above. Those bears bought back shorts back at the April 26th high yesterday.
- The Bulls knew April 26th was a credible location to buy, and they likely had limit orders there too.
- The odds are the market will return to the May 1st close, allowing the scale in bulls out. However, the Bears may get a second leg down first.
- A lot of bulls who bought the May 1st low likely bought more around the April 26th high. Because the selloff had strong momentum down, many of those bulls are sufficiently disappointed enough to be happy to exit breakeven on the entire trade, which is near 4,145.
- Overall, the market is returning to neutral before the FOMC report at 11:00 AM PT/ 2:00 PM EST.
- The past month has formed an expanding triangle and is in breakout mode, which means traders should be neutral going into the report and assume the probability is 50% for a measured move up or down based on the past month’s range.
Emini 5-minute chart and what to expect today
- Emini is up 8 points in the overnight Globex session.
- The overnight Globex market has gone sideways following yesterday’s strong selloff.
- The bears see yesterday’s selloff as strong enough to increase the odds of a second leg down.
- Traders should be open to a possible test of the lows of yesterday. However, because the pullback from yesterday’s low was so deep, the odds are that any selloff will form a higher low, and the market will continue sideways.
- Traders should assume today will have a lot of trading range price action. As I often say, most traders should wait for 6-12 bars before placing a trade unless they are comfortable with limit order trading.
- Most traders should try and catch the opening swing trade, which typically happens after the formation of a double top/bottom or a wedge top/bottom.
- The most important thing is not to deny what the price action is doing. Price is truth, and no matter what your opinion is, if the market is doing the opposite, you must react accordingly.
- Traders should be flat an hour before the FOMC report. Traders should wait for at least 2 bars following the FOMC release.
- Traders should be sure and trade small during the FOMC report as the bars can get very big. In general, most traders should trade a 20% position size.
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.