S&P 500 E-Mini: Bull Trend From Open Followed by Mid-Day Reversal in the Cards
S&P Emini Pre-Open Market Analysis
- The S&P 500 Emini reached the 4,400 big round number and the August 18th low yesterday.
- Since the daily chart was likely in a trading range, the odds favored the August 18th breakout point low getting tested and allowing the bulls who bought this low and lower to make money.
- The Bulls have done an excellent job with the rally over the past three trading days. The odds favor the first reversal down being minor and the Bulls getting a second leg up.
- It is essential to understand that while the market is Always In Long, any rally the bulls get will likely become a bull leg in a trading range, not a bull trend. This means the Bulls will probably be disappointed over the next few weeks.
- The bears are hopeful that the current rally from the October low will become a lower high in the bear trend, leading to lower prices.
- More likely, the channel down that began in July is a bear leg in a trading range. This means the rally could be deep and test up to 4,500.
- Overall, the odds favor a second leg up. However, the Bulls will probably be disappointed soon. Since the market is in a trading range, traders should be prepared for a deep pullback before the bulls can get a second leg up.
What to Expect Today
- The bears want to trigger the sell below yesterday’s low. However, since it is a bull bar, buyers will likely not be far below it.
- The bears also want to pause the buying and they will try to get a close below the open of the day. This means that the open of the day and yesterday’s low will probably be magnets today.
- Because of the strong buying over the past couple of days, it is reasonable to assume that the market may try and pull back for a day or two. This means today and tomorrow will probably be a trading range or a bear trend, not another bull trend day.
- There is an 80% chance that today will form a trading range open and only a 20% chance of a bull trend from the open. This does not mean the market will not form a brief rally or selloff on the open. Any rally or selloff on the open will probably be a leg in a trading range.
- Since the odds favor a trading range open, traders can wait for the formation of a double top/bottom or a wedge top/bottom before looking to place a trade. This will allow a trader to try and catch the opening swing that often begins before the end of the second hour.
- Lastly, traders should pay attention to the August 18th low and 4,400 price level as the market may have difficulty closing above it on the daily chart.
- Lastly, traders must be patient on the open and try not to force a trade. There is plenty of time to place a trade; if a setup does not look like an idea, it is better to pass on the trade.
Yesterday’s Emini Setups
S&P 500 Emini-5-Minute Chart
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 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 the 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.
