E-mini: Despite Follow-Through Buying, Bear Body Expected At July Close
Al Brooks | Jul 22, 2021 09:54AM ET
Yesterday saw E-mini follow-through buying after Monday’s big bull reversal. Since yesterday had a bull body, it confirmed the reversal. That increases the chance of at least a small second leg sideways to up after the first pullback.
There is now a 50% chance of a new high which means that there is still a 50% chance of a lower high. A lower high would lead either to a bear trend or a trading range. A trading range is always at least slightly more likely.
What happens if there is a new high next week? The bulls want the bull trend to continue forever. That is not going to happen. The next reasonable targets are the measured move up from the 3-month trading range at 4,404, the top of the bull channel at around 4,500, and the measured move up based on the height of the pandemic crash at 4,537.
E-mini has been trading sideways in July. In trading ranges that resist breaking out. Therefore, there might be more sellers than buyers at the new high, which would be a break above the trading range. I have been saying that July will probably have a bear body on the monthly chart when it closes next Friday. It could make a new high and then sell off to below the open of the month before the month ends next Friday.
The more the reversal up continues, the more likely the bulls will get a sixth consecutive bull bar on the monthly chart. That has not happened in 10 years. Therefore, a seventh consecutive bull bar will be even more unlikely, which means August would then probably have a bear body.
While it is less likely after the 2-day rally, the bears still have better than a 50% chance of creating a bear body in July. The E-mini is not too far above the open at the moment. Also, next Wednesday’s FOMC announcement is a catalyst. It could lead to a big move up or down, and that means there is the potential for a move down below the open.
h2 E-mini 5-minute chart and what to expect today/h2E-mini is unchanged in the overnight Globex session.
Monday was a strong bull trend. Trends tend to weaken as they progress. Yesterday was also a bull trend, but it was in a bull channel, which is a weaker trend.
A bull channel usually behaves like a bear flag in that a breakout is more likely to be below the channel than above. That increases the chance of a swing down today, which would break below yesterday’s bull trend line. A bull channel typically evolves into a trading range. The market usually has to go sideways at least 10 – 20 bars before the bears can get a trend reversal.
Even if there is a trading range today, the odds are still greater that the 2-day bull trend will resume for at least one more leg sideways to up than it is that it will reverse.
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So what should traders expect for today? While a trend up or down can always happen, the loss of momentum yesterday increases the chance of at least a couple hours of trading range trading today. Also, today will probably be sideways or down after 2 big bull days in a month-long trading range.
h2 Yesterday’s E-mini setups/h2Here 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 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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