S&P Emini Pre-Open Market Analysis- The S&P 500 Emini sold off yesterday, testing last Thursday’s close. However, the market failed to break below last Thursday’s Low. At the moment, the odds favor a second leg down after last week.
- However, the bears were so disappointed by the deep pullback that many were happy to exit near breakeven on their first entry with a profit on any scale in the entry.
- Last Thursday is a strong enough surprise that the odds favor a second leg down.
- The market is in a trading range, which increases the risk of the pullback being deeper than what traders want.
- Because last week’s breakout was the first close below the daily chart moving average since January, the odds favored buyers at the moving average.
- The daily chart is in a bull channel, and it is important to realize that channels convert into trading ranges 75% of the time. This means that the odds favor the test of prior higher lows over the next several months.
- The bears want the market to get down to the January 5th low, which is the bottom of the bull channel.
- Overall, traders should expect a second leg down and a test below last Thursday’s bear breakout bar.
What to Expect Today
- Emini is down 77 points in the overnight Globex session.
- The Globex market formed a strong downside breakout bar during the 8:30 AM EDT report.
- The report bar is enough of a surprise to expect a second leg down.
- The market is likely to have a large gap down on the opening of the U.S. Session.
- The bears are hopeful that today will be a bear trend day, and the bears will get a large second led down during the U.S. Session.
- The odds are the open will form a trading range, and the market will have to get closer to the moving average.
- If today is going to be a bear trend day, the odds favor a bear trend due to the large gap down.
- Most traders should wait for 6 – 12 bars before placing a trade unless they can make quick decisions.
- The bars are likely going to be big today, so traders must be mindful of risk and, if in doubt, trade 20% of their normal position size.
Yesterday’s Emini Setups
Here are reasonable stop-entry setups from yesterday. I show each buy entry bar with a green arrow and each sell entry bar with a red arrow. 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.