Trading Update: Tuesday May 16, 2023

S&P Emini pre-open market analysis

Emini daily chart

• Emini forming tight trading range which is a triangle.
• The market has formed an ioi pattern (inside bar followed by an outside bar followed by an inside bar). These patterns (ioi) are meaningless in a tight trading range as they are breakout mode patterns.
• The bulls see yesterday as a bull bar closing on its high. They want today to lead to a strong entry bar and trapped limit order bears selling above yesterday’s high. The Bulls will likely be disappointed with today, assuming it triggers the buy above yesterday. This means that the odds are that the bulls will be reminded that the market is in a trading range.
• Traders should assume that the market is in breakout mode and is very close to neutral.
• While the odds might slightly favor the bulls following the rally that began on March 13^th. The market would not go sideways if the bulls had a big advantage.
• The bears see the market forming a lower high with February. Next, they want a downside breakout and a test of the 4,000 Big Round Number.
• Traders making money right now are limit order traders betting against successful breakouts. Eventually, these countertrend traders will get trapped by a successful breakout and be forced to take a loss.
• When a successful breakout happens, it can be quick, so traders must be ready. However, at the same time, they must be patient, knowing that eventually, a successful breakout up or down will happen.
• The market is finding much agreement with 4,150 as it is the midpoint of the past month on the daily chart.
• Overall, traders should be patient and remember what Al always says: “Until there is a breakout, there is no breakout.” This means a trader cannot be too eager.

Emini 5-minute chart and what to expect today

• Emini is down 12 points in the overnight Globex session.
• The Globex market continues to go sideways in a relatively tight range on the 60-minute chart.
• As stated above, the Emini on the higher time frames is in breakout mode, which means the probability is close to 50%.
• Traders should be neutral going into U.S. Session and expect a lot of limit order trading. As I often say, traders should assume that the first 6-12 bars will be a limit order market and have several failed breakouts.
• Traders should pay close attention to the open of the day. With the market likely having a lot of trading range price action, traders should be prepared for the day’s open to be a magnet for most of the day.
• In general, traders should use caution with the first hour on the open. This is because the open has a higher probability of lower probability events happening as the market decides on the opening swing.
• There are 81 bars on the 5-minute chart, and a trader only needs a few good trades daily to do well. This means that a trader does not have to trade the whole day. By waiting for 12 bars, a trader can gain certainty on the open and the type of day the market will form.
• Lastly, most traders should focus on the opening swing that often begins before the end of the second hour. It is typical for the opening swing to start after the formation of a double top/bottom or a wedge bottom/top. A valid stop entry typically leads to the opening swing with decent probability and good risk/reward.

Emini intraday market update

• The Emini gapped down and formed a big bull bar on bar 3. The odds favored a small 2^nd leg up; however, the bulls got trapped after the bad follow-through bar on bar 4, which led to a strong bear bar on bar 5.
• The bears got a 2^nd leg down to bar 9, and the market formed a possible wedge bottom with a big bull reversal bar on 10.
• The market has spent much time near the open of the day and is in a tight trading range as of bar 45 (10:15 AM PT).
• The market will probably test the four high or the nine low. Typically both the high and low of the day are not set within the bar 18 range. This means the odds favor going below bar 9 or above bar 4.
• Traders should be cautious today as today will probably continue to have a lot of trading range price action and may be an inside day with yesterday.
• Until there is a clear breakout with follow-through, traders should use caution and assume the breakout will fail.  
• As of bar 48 (12:30 PM PT) the market is trying to break out and test the 9 close.

Yesterday’s Emini setups

Richard created the SP500 Emini charts (Al on leave).

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.

EURUSD Forex market trading strategies

EURUSD Forex daily chart

• The EURUSD formed a bull reversal bar yesterday. However, it is small and follows large bear trend bars.
• The odds are there are sellers above yesterday’s high and that the market will go sideways to down.
• The bulls want the recent selloff over the past few days to lead to a higher low and form a 2^nd leg bear trap. Next, the bulls want to trap the bears and get an upside breakout, testing the high of May 11^th.
• The problem with the 2^nd leg bear trap argument is that the channel down over the past week and a half is tight. This means that the first reversal up will likely be limited.
• This means traders should expect lower prices unless the bulls can develop more buying pressure. The bears still want to get to the March 24^th bottom of the bear channel.

Summary of today’s S&P Emini price action

Richard created the SP500 Emini charts (Al on leave).

End of day video review

Today’s End Of Day review will be presented in the Trading Room and only available to the trading room subscribers.

See the weekly update for a discussion of the price action on the weekly chart and for what to expect going into next week.

Trading Room

Al Brooks and other presenters talk about the detailed Emini price action real-time each day in the BrooksPriceAction.com trading room days. We offer a 2 day free trial.

Charts use Pacific Time

When times are mentioned, it is USA Pacific Time. The Emini day session charts begin at 6:30 am PT and end at 1:15 pm PT which is 15 minutes after the NYSE closes. You can read background information on the market reports on the Market Update page.