– I have been saying that there should be a pullback for one to three days since the rally has reached a sell zone. Emini V-bottom rally stalling.
– That zone is the middle of the six-month trading range at around a 50% retracement of the January selloff.
– Also, it is testing the Jan. 10 low, which is the highest of the three breakout points in the selloff.
– I also have been saying that a bottom after a second leg sideways to down is more likely than a V-bottom since a V-bottom is uncommon.
– If there is going to be a V-bottom, the bulls need to prevent this selloff from falling much further and from lasting more than a few days.
– Yesterday is a high 1 bull flag buy signal bar after a strong rally, but it had a bear body. However, today’s unemployment report is more important and there is an increased chance of an early trend today.
– If the Emini falls back below the top of last week’s tight trading range and then rallies strongly, it could still lead to a bull trend, but the bottom would be a higher low major trend reversal and not a V-bottom.
– Today is Friday and, therefore, weekly support and resistance can be important, especially in the final hour. The bulls want the week to be a big bull bar closing on its high. It would then be a strong entry bar after last week’s double bottom reversal. That would make higher prices likely next week.
– At a minimum, the bulls want a bull body, preferably closing above its midpoint and above the December low. Traders would then look for sideways to up trading next week.
– If this week is a bear bar closing on its low, it would be a low 1 sell signal bar on the weekly chart for next week. Traders would expect lower prices.
– There are back-to-back OO patterns on the monthly chart (consecutive outside bars). That is a second attempt to reverse down late in a bull trend, which has a higher probability. January was a bear bar that closed below its midpoint, which further increases the chance of lower prices over the next couple months.
– The Emini should fall below the January low in February or March, which would trigger the monthly OO sell signal.
– But because the monthly bull trend has been strong, the reversal down should only last two to three months.
– The odds favor a new high before a bear trend reversal on the monthly chart.
– However, a three-month selloff might lead to a trading range, which could last a year or more. But even if it lasts a long time, traders should expect at least one more new high before there is more than about a 20% selloff.
– There is a 50% chance that the current reversal down will continue to below 4,000 within a few months.
– There is only a 30% chance that it will test the pre-pandemic high, which is the February 2020 high, just above 3,300. That is the most important breakout point of the two-year rally.
– Last week, I created a video in which I discuss what the next few years might be like.
Emini 5-minute chart and what to expect today
– Emini is down 20 points in the overnight Globex session just after the unemployment report.
– The bulls are hoping this is just a test of yesterday’s low and that today will reverse up from a double bottom.
– The bears hope today will be a bear trend that again breaks below the October low and continues down to the pre-pandemic high over the next few weeks.
– What will happen? Traders need more information, which means more bars.
– If there is a series of strong trend bars up or down on the open, today will probably be a trend day.
– However, a big down in January and big up in February creates big confusion. It makes traders less willing to press bets in either direction and it increases the chance of the market going sideways for two or three days. When a market is sideways, it typically has swings in both directions, which means a lot of trading range trading.
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 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.