S&P 500 E-Mini Closes Below Moving Average
2023.08.04 10:13
- The rallied yesterday following a gap down. However, the market closes below the moving average (blue line) for the first time in over 40 bars.
- The market is testing the June breakout point high and 4,500. Both of these price levels will probably act as support.
- The bears are hopeful that yesterday’s weak bull close is a pullback that will lead to lower prices.
- The Bulls see yesterday as a 2nd leg trap. Next, they are hopeful that today will have a strong bull entry bar closing above the moving average.
- The bears have not yet done enough to make the market Always In Short. This means the bears probably need at least 1-2 more bear bars closing on their lows.
- It is common for pullbacks in rallies to almost become Always In Short and reverse up.
- The selloff over the past four days is strong enough that the first reversal up will probably fail. This means traders should expect sideways trading over the next few trading days.
- Overall, traders will pay attention to what kind of follow-through the bears will get below the moving average. At the moment, the odds favor a reversal up and bears becoming disappointed.
Emini 5-minute chart and what to expect today
- Emini is up 17 points in the overnight Globex session.
- The overnight Globex market rallied last night and is returning to yesterday’s close.
- Traders should expect the open to have a lot of trading range price action for the first hour of the U.S. Session.
- As I often say, most traders should consider not trading the first 6-12 bars unless they are comfortable with limit orders, wide stops, and scaling in.
- There is often a 50% chance that the initial breakout on the open reverses directions. This exposes traders to getting trapped on a breakout that reverses directions, causing the trader to take a big loss. By waiting for 6-12 bars, a trader will gain certainty on the day’s structure and catch the day’s high or low.
- Most traders should focus on catching the opening swing that often begins before the end of the second hour after forming a double top/bottom or a wedge top/bottom.
- Today is Friday, so weekly support or resistance is important. Traders should be ready for a surprise breakout up or down late in the day as traders decide to close the weekly chart.
- Trader should pay attention to yesterday’s close. If bears are disappointed enough, they may buy back shorts and bulls buying, causing a test of yesterday’s high.
Yesterday’s Emini 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. 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.
