S&P 500 E-Mini: Climactic Reversal at 5,700?
2024.07.12 10:57
S&P E-mini Pre-Open Market Analysis
- The daily chart reversed down yesterday, following Wednesday’s buy climax test of the 5,700 round number.
- While Wednesday is good for the bulls, it was a climactic bar at resistance, which increased the risk of profit-taking.
- The Bears did a great job getting a reversal down yesterday, which is expected after a buy climax late in the rally.
- Yesterday is a strong enough bear reversal bar that the odds favor a second leg down. This means that if today forms a bull reversal bar (high 1 buy setup), there will probably be sellers above its high.
- The July rally is strong, which means that today will probably not be a strong entry bar for the bears.
- The probability that the bulls have is that the July rally is a strong buy climax late in a bull trend. This increases the risk of a reversal down and a test of the July low over the next several weeks.
- The bull trend is getting climactic on the higher time frames. This increases the risk of the market putting in a high of the year sometime over the next few months.
- Traders trading the daily chart should expect the upside to be limited and the market to begin to go sideways and test the July low and the 5,500 round number.
- Because the rally up in July is strong, the bears will probably need a second entry short at a minimum before they can get an attempt at reversal down to the July low.
What to Expect Today
- E-mini is up 5 points in the overnight Globex session.
- The 8:30 AM EST report bar formed a bull reversal bar on the 15-minute chart. It is a large doji bar, which increases the chances of sideways trading.
- The bulls want a rally into the open of the U.S. session. However, because the 8:30 report bar is a doji on the 15-minute chart, that increases the risk of sellers above and a test for the midpoint of the bar.
- Today is Friday, so weekly support and resistance are important. Currently, the weekly chart is below the midpoint of the weak and forms a parabolic wedge top. The bears want the week to close below the open, which is near 5,612.
- Because the daily chart is in a microchannel, today will probably not be a strong bear-trend day.
- As I often say, traders should assume that today, there will be a lot of trading range price action on the open. This means that most traders should not be in a rush to place any trades.
- The odds favor a second leg up after the rally on the 8:30 AM EST report bar. However, since the market is in a trading range, the bulls may get a deep pullback before they get their second leg up.
Yesterday’s E-mini 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 nearly 4-year library of more detailed explanations of swing trade setups (see Online Course/BTC Daily Setups).
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.
