S&P 500 E-Mini: Climactic behavior late in the trend

  • o Formed a strong bullish trend bar yesterday, closing near its high.
  • o The market is about 140 points away from the 20-period moving average. This is culminating behavior late in a trend that started in early November.
  • o Bulls probably won’t be eager to buy that far from the average price (moving average). This increases the chances of a pullback to the moving average.
  • o The moving average is a reflection of the average price. Traders who buy now are forced to pay a premium. Traders are happy to pay a premium when the momentum is strong and it is not late in the trade.
  • o Bears are hoping for a sharp selloff to the moving average and a break below it.
  • o Disadvantages are more likely to be limited. However, as stated above, the odds are in favor of a moving average test.
  • o Formed an internal bar last Friday. Inside bars are triangles and often magnets, especially at the end of a trend. Odds are in favor of testing last Friday’s high over the next few days.
  • o There are momentum bulls that will stay long until there is a reason to exit the long positions. One reason would be a bear bar closing near its bottom or a series of 2-3 consecutive bear bars.
  • o If the bears approach strongly, this could trigger a series of bullish stops leading to a breakout down. These bulls selling long positions are momentum bulls protecting profits.
  • o If bears receive strong subsequent selling, more momentum bears will establish short positions.
  • o In general, traders should assume that the market will go sideways and test December 15thth high (4779.5).

Emini 5 minute chart and what to expect today

  • o Emini is down 7 points in the night session on Globex.
  • o Today is likely to close below the day’s open. This means traders should pay close attention to the opening as it will likely be a magnet for most of the day.
  • o If the bulls get a rally above the open, traders will have access to the strength of the move. If it looks like a leg in a trading range, with close gaps, traders will bet against the bulls.
  • o Traders should accept that there will be a lot of price action in the open trading range today. There is only a 20% chance of a trend opening, which means there is an 80% chance of a trading range opening.
  • o Traders should consider not trading the first 6 – 12 bars unless they are comfortable with limit orders and making quick decisions.
  • o Most traders should focus on catching the initial swing, which often starts before the end of the second hour. This means traders should look for the market to form a double top/bottom or wedge top/bottom. It is common for one of the patterns mentioned above to form before the swing trade begins.

Yesterday’s Emini settings

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 the Encyclopedia of Chart Patterns have access to a nearly 4-year-old library of more detailed explanations of swing trade setups (see Online Course/BTC Daily Setups). Encyclopaedia members receive current daily charts added to Encyclopaedia.

My goal with these charts is to always put things in perspective. If a trader was trying to be always in position or almost always in position throughout the day and was not currently in the market, these entries would be logical times for him to enter. Therefore, these are rocking records.

It is important to understand that most swing setups do not result in swing trades. As soon as traders are frustrated, many of them exit. Those who exit prefer to exit with a small profit (scalp), but often have to exit with a small loss.

If the risk is too much for your account, you should wait for lower risk trades or trade on an alternative market like Micro Emini.

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