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E-Mini: What'll It Be? New High Or Test Of The October Low?

By Al BrooksStock MarketsDec 06, 2021 09:26AM ET
E-Mini: What'll It Be? New High Or Test Of The October Low?
By Al Brooks   |  Dec 06, 2021 09:26AM ET
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E-mini is up 24 points in the overnight Globex session. Friday’s low was a lower low double bottom with Wednesday’s low. The bulls want the reversal up that began at the end of Friday to continue up above Friday’s high, which is the neckline of the micro double bottom. They then want a measured move up to the all-time high before the end of the month.

Bears on the other hand want any rally today or tomorrow to fail at or below Friday’s high. They then want a break below the double bottom and a measured move down to near the October low.

E-mini has been sideways for 3 days. That increases the chance of today being another sideways day. Since Friday was a sell climax day, there is a 75% chance of at least a couple hours of sideways to up trading that starts by the end of the second hour of trade. And because of the double bottom at a cluster of support on the daily chart, there is an increased chance of a bull trend day today.

After 4 big bear days and a failure to break through support, there is a smaller chance of a big bear day today. But if there is a series of big bear bars early in the day and a break below Friday’s low, then traders will look for a bear trend day.

Today will most likely be sideways or up.

E-mini 5-minute chart and what to expect today

Friday was a big outside down day and the 3rd sideways day. That increases the chance that today could be sideways again. If today is an inside day, there would be an ioi (inside-outside-inside) pattern on the daily chart. That is a Breakout Mode pattern. Today would then be both a buy and sell signal bar.

The bulls had a 7-day micro wedge as of last Wednesday, and it is in a support zone. It was around a 50% pullback, the 50-day and 100-day moving averages, the November low (December triggered a sell signal when it traded below the November low), just below the Sept. 2 high (the breakout point of the October rally), and almost down to the bottom of the bull channels on the daily (around 4443) and weekly charts (around 4470).

Friday broke slightly below that micro wedge bottom, but reversed up into the end of the day. A breakout below a wedge bottom has a 50% chance of failing and reversing up, and a 50% chance of continuing down. If it continues down, a reasonable target is a measured move based on the height of the wedge, which would be down around the October low.

Is there a 50% chance of a correction down to the October low before there is a new high? Not yet, but a couple big bear bars this week would make it likely.

There are several gaps in the October rally that are also magnets below, but the October low is the most important magnet. That is almost exactly a 10% correction.

Selloffs tend to stop at certain percentages down from the high, like 1%, 2%, 5%, 15%, and 20%. That means they get drawn to those numbers. That is another reason why the October low is so important. If the E-mini gets there, it will officially be in a correction. The definition of a correction is a 10% selloff. The definition of a bear trend is a 20% selloff.

I have said a few times that if the E-mini gets to the October low, it will probably rally for a month or two. The bulls will hope for a double bottom and then a new high. However, if it rallies from the October low, it will probably form a lower high and turn down again. Then traders will begin to talk about a head and shoulders top.

Only about 40% of head and shoulders tops lead to bear trends (and about a measured move down). A head and shoulders top is a trading range and usually a triangle. A continuation of the trading range or a resumption of the bull trend happens 60% of the time. But a 40% chance of a bear trend is enough for traders to be prepared for a bigger selloff.

I've been saying that the E-mini might just go sideways before deciding between going up to the high or down to the October low. When the chart is not clear, it usually goes sideways. It could be sideways for a few days or for a month or two. And at the moment, the chart is not clear. The E-mini has been reversing every day or two. But consecutive big bull bars would be clearly bullish, and consecutive big bear bars would be clearly bearish.

E-mini bear trend from the open and outside down day
E-mini bear trend from the open and outside down day

Here are several reasonable stop entry setups from Friday. 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.

E-Mini: What'll It Be? New High Or Test Of The October Low?

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E-Mini: What'll It Be? New High Or Test Of The October Low?

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