E-Mini: August Rally Testing Bull Channel Top

Friday, the E-mini was in a small bull bar, so weak follow-through after Thursday’s small breakout to a new high is now testing a bull channel top.

Bulls are looking for a 60-point measured move up based on the 10-day trading range. The wedge top in a bull channel on the daily chart, based on May 7 and July 14 highs, is just above 4,450. It is a magnet above.

Bears want a reversal back down to the bottom of 10-day tight trading range (possible Final Bull Flag). Since Friday was a doji bar, it is a weak sell signal bar. Even if bears get a bear day today, bulls have been buying every 1- to 3-day pullbacks for over a year, and they will buy a reversal down this time as well.

August or September should show us a bear bar on monthly chart, which once formed will probably see a 2- to 3- month correction of 15 to 20%.

h2 E-mini 5-minute chart and what to expect today/h2

E-mini is down 7 points in the overnight Globex session. It therefore might open close to Friday’s low. If there is a gap down, it should be small. Most small gaps close in the 1st hour.

I have been saying since late July that August would probably trade above the July high since the trend on the monthly chart is strong and July closed near the high of the month. August broke above the July high last week. But I have also been saying that the breakout might be small and lead to a reversal down for a few months since the streak of 7 consecutive bull bars on the monthly chart should end in August or September.

Friday’s small range is a sign of hesitation and uncertainty. Traders have not yet decided if the breakout will succeed. That increases the chance of more hesitation today, which means more sideways trading.

Friday formed a triangle on the 5-minute chart. That is a Breakout Mode pattern. If there is a breakout today, the probability is only slightly higher for the bulls. Furthermore, there is about a 50% chance that the breakout will fail.

Finally, when there is a breakout from a triangle, there is usually a test of the apex of the triangle before the trend goes far. Consequently, even if there is a strong trend up or down today, there will probably be a test of the apex of the triangle within a few days.

h2 Friday’s E-mini setups/h2

Here are several reasonable stop entry setups from Friday. 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 much more detailed explanation of the swing trades for each day (see Online Course/BTC Daily Setups). 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 E-mini.

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Written By: Al Brooks