E-mini pre-open market analysis
E-mini daily chart
Yesterday, E-mini developed a big bear body, again breaking below last week’s low. It also closed below the open of the month and below the 4400 Big Round Number. At the end of July, I wrote that August might rally in the first half of the month because July was strong, but then sell off to below the open of the month in the second half because of the streak of 6 bull bars on the monthly chart, which is unusual.
While yesterday E-mini traded below the open of the month, does that mean August will close below the open of the month? Traders will find out over the next week.
I have been saying that either August or September should have a bear body on the monthly chart since there has never been a streak of 8 consecutive bull bars on the monthly chart in the 25-year history of the E-mini. I have also been saying that if August or September are a bear bar, the E-mini will probably be trading sideways to down for 2 to 3 months, and fall 15 to 20 percent.
The next target down is the bottom of the bull channel on the daily chart. It is currently around 4360. That is also near the Aug. 3 low. The rally from the July 19 low has been a Spike and Channel Bull Trend. When it ends, it usually evolves into a trading range. The bottom of the trading range is often near the start of the channel, which was the Aug. 3 low. That low is additionally important because it is the low of the month. If the E-mini finishes the month on the low, not only will the month have a bear body, it will be a strong sell signal bar. That would increase the chance of a 15 to 20% correction.
While the context is good for a reversal down, it is important to note that there have been many big 2- and 3-day selloffs since the pandemic low. Each one led to a new high. By the time traders believe that a reversal down will lead to a correction, the correction is typically about half over.
If there is strong follow-through selling over the next few days, traders will conclude that the correction has begun. If not, they will buy again, expecting another new high.
E-mini 5-minute chart and what to expect today
E-mini was 32 points down in the overnight Globex session. There will be a big gap down. A big gap increases the chance of a trend day in either direction. However, after 2 extremely big bear days, a third big bear day would be unusual.
Since yesterday was a sell climax day, there is therefore only a 25% chance of another big bear day today. If there is a bear trend, it will probably not be strong. It would more likely be a Trending Trading Range Day or a Broad Bear Channel, both of which have a lot of sideways trading. But, there is a 50% chance of some follow-through selling in the first hour. If there is, traders should watch for a reversal up. Also, there is a 75% chance of at least a couple hours of sideways to up trading that begins by the end of the second hour.
With the E-mini extremely oversold and still in a bull trend, there is an increased chance of a bull trend today.
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 E-mini.