S&P 500 E-Mini: Pullback in the Cards

Emini daily chart

• The Emini has formed a seven-bar bull microchannel. This is a strong enough breakout for traders to expect a 2^nd leg up and the market to get above the October 17^th high. However, as strong as the breakout is, the market is still within a trading range. This means a pullback is likely.
• The market is still within a larger trading range; therefore, the pullback of the rally from the October 27^th low to yesterday’s high could reach a 50% pullback (4,257).
• Some bears sold the third leg down to the October 27^th low and got trapped on the reversal up. While some bears got out and took the loss on the way up, other bears scaled in higher and they will likely look to get out on any pullback.
• The bulls know that the bears are trapped and will use any pullback to add to their positions.
• Trading ranges are often forgiving to traders who scale in. This means the market may pull back to the 50% price level mentioned above to allow the bears to exit near breakeven or with a small loss.
• The bulls want to prevent a deep pullback and continue the rally higher. This will squeeze the scale in bears and force them to buy back shorts, adding to the buying pressure. There would also be trapped bulls who missed getting long hoping to be able to enter on a pullback. Those bulls will also get long, adding to the buying pressure.
• Overall, traders will expect a pullback soon lasting 1-3 days.
  
  

Emini 5-Min Chart

Emini 5-minute chart and what to expect today

• Emini is up 2 points in the overnight Globex session.
• The Globex market recently tested yesterday’s low during the early morning hours. The bulls want the market to form a double bottom and rally above the November 4^th high.
• If the market reaches the November 4^th high, there will probably be sellers not far above, and the trading range price action will continue.
• The bulls want a strong upside breakout today and a close above the November 4^th high.
• As always, traders should expect trading range price action on the open and consider not trading for the first 6-12 bars on the open.

Yesterday’s Emini setups

Here are reasonable stop entry setups from yesterday. 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.