The S&P 500 E-Mini has triggered a High 1 buy setup by going above the January 31st bear breakout bar. Historically, late buy setups in a bearish trend often lead to sideways trading. While the rally on January 31st appeared to signal a second leg down, the first downside breakout actually began on January 17th, increasing the odds of more buyers entering the market. The bears hoped for follow-through selling below the moving average after the breakout, but were unsuccessful. Traders are now facing a challenging situation of buying high at the top of a small trading range, limiting potential buyers above yesterday’s high.
Sellers are likely to exist above the January 31st high, and with the current market conditions, these bears are expected to make short-term gains. The probability of today forming another strong bull breakout bar is low, implying a potential letdown for bullish traders. The bears who sold the close of the January 31st bear breakout are disappointed by yesterday’s rally, increasing the likelihood of them exiting on any pullback or retest of the January 31st close. Overall, traders should brace themselves for more sideways trading as both the bulls and bears fight for a second leg in their respective directions.
Emini 5-minute Chart and Today’s Expectation
The Emini is down 20 points in the overnight Globex session, indicating a potentially volatile market. The overnight Globex market went sideways for most of the session until the bears initiated a strong downside breakout during the 8:30 AM EST report. Given this surprise move, a second leg down is likely, which will affect the opening of the U.S. session. Traders should prepare for a lot of sideways trading at the open, and it is prudent to avoid trading for the first 6 – 12 bars, unless comfortable with limit orders and quick decision-making. A focus on catching the opening swing that often begins before the end of the second hour is advised for most traders. Attempting to catch this opening swing often presents a credible stop entry based on specific patterns, providing a favorable risk-reward opportunity with decent probability. As it is Friday, traders should be mindful of possible late-day surprise breakouts as the weekly chart comes to a close.
Yesterday’s Emini Setups
Here are the reasonable stop entry setups from yesterday. Each buy entry bar is denoted with a green arrow, while each sell entry bar with a red arrow. It is important to acknowledge that most swing setups do not lead to trades. Disappointed traders often prefer to exit with a small profit or small loss. If the risk is too large for an account, it is advisable to wait for trades with less risk or explore alternative markets like the Micro Emini.