S&P 500 E-Mini Overbought With Magnets Below
2024.01.02 11:58
S&P Emini pre-open market analysis
E-Mini daily chart
- o The sold off last Friday, breaking below the 6-bar bull micro channel.
- o The market is overbought, and there are two obvious magnets below: the December 20th outside down breakout and the 20-period moving average.
- o Friday’s downside breakout is strong enough for a second leg down. This means that there might be more sellers than buyers on Tuesday’s open.
- o The market has been above the moving average for over 37 bars, which indicates strong buying. However, it is also climactic and extreme behavior.
- o Traders are happy to buy far away from the moving average when the momentum is strong and the odds favor higher prices. Once the market begins to go sideways, traders will become less willing to pay a premium and only be willing to buy pullbacks.
- o The December 20th bear breakout warned that the market was transitioning into a trading range. Therefore, traders should look to enter on a pullback.
- o If traders are unwilling to pay a premium in an overbought market, they will measure value like the moving average. This means that traders will move their buy order to the moving average in anticipation of it getting tested.
- o It is important to remember that the daily chart has been in a strong bull trend for two months. It is unlikely that the bears will gain control in a short period of time without making the market go sideways for several bars.
- o The market is near the March 2022 high, a magnet for the bulls. However, the market will probably test down close to the moving average and the December 20th high first.
Emini 5-minute chart and what to expect today
- o Emini is down 28 points in the overnight Globex session.
- o The Emini sold off during the early morning hours of the Globex session.
- o The bears are hopeful that the U.S. Session will continue the selling, creating a strong bear trend day.
- o Assuming today forms a large gap down, the odds will favor the bears getting at least a small 2nd leg down during the U.S. Session.
- o Traders should assume that today will have a lot of trading range price action on the open.
- o If the market is far from the moving average on the open traders may not be willing to sell until the market gets closer to the moving average.
- o As I often say, most traders should wait 6-12 bars before placing a trade unless they are comfortable making quick decisions since most breakouts fail.
- o Most traders should try to catch the opening swing that often begins before the end of the second hour after the formation of a double top/bottom or a wedge top/bottom.
- o The most important thing on the open is never to be in denial of the price action. Traders must trade the chart in front of them and not what they hope the market will do.
Yesterday’s Emini setups
Here are reasonable stop entry setups from last Friday (before New Year break). 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 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.
