Pre-Open market analysis
Yesterday gapped up on the daily and weekly charts. The bulls want a successful breakout above the 3 year trading range and at least a couple legs up. Today might gap up again, extending the buy climax, which is already stretched.
But this gap is late in a 5 month bull trend and at the top of a 3 year trading range. There is therefore an increased risk of a reversal down. This is especially true after the streak of 9 consecutive bull bars that ended a couple weeks ago.
When the gap up on the daily chart is big, like yesterday’s was, the Emini often goes sideways for a few days before traders decide whether the breakout will succeed of fail. Yesterday was a trading range day, even thought it rallied into the close. Traders expect another trading range day today. But no one would be surprised by a trend day up or down.
If this breakout fails, it could fail with an island top. A gap down this week would create one. Alternatively, it could fail with just a reversal down. Then yesterday’s gap would be an exhaustion gap. For example, if today gaps up and sells off to below yesterday’s low, today would be a big outside down day. That would be an early sign of profit taking.
There are 5 trading days left to August. At the moment, August is a big bull bar on the monthly chart. However, a bar often changes just before it closes. It could become a bigger bull bar, or it could have a big tail on top. There will be an increasing chance of a surprisingly big move up or down later in the week.
Overnight Emini Globex trading
The Emini is up 13 points in the Globex session. It might gap up again today. The buy climax on the daily chart is extreme. It includes a streak of 9 consecutive bull days. This increases the chance of a swing down for a few weeks starting at any time.
Also, a strong trend often attracts profit taking before a higher time frame bar closes. The candlestick on the monthly chart closes on Monday. That increases the chance of some selling at the end of the month.
However, there is no sign of a top yet. Even though a lot of the recent days have been mostly sideways on the 5 minute chart, day traders keep creating bull breakouts, extending the bull trend on the daily chart.
Because there is an increasing risk of a sharp swing down, day traders are ready to sell. They are looking for an intraday top, like a midday major trend reversal, or a Bear Trend From The Open. As I said, today could gap up and then sell off to below yesterday’s low. This would create an outside down day. Despite the strong bull trend on the daily chart, day traders will be quick to sell for a swing down if the bears begin to get consecutive big bear bars on the 5 minute chart.
Yesterday’s 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. I rarely also show limit order entries and entries on the close of bars. I do not want the lines to be distracting. If they are longer, I make them dotted. But, they have to be visible, so I make the shorter ones solid. Buyers of 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.
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.