Pre-Open market analysis
I have been writing that the Emini will sell off dramatically if traders begin to believe that the number of coronavirus cases will increase exponentially. That is appearing to be the case.
The Emini traded limit down in the Globex station. Back in the late 1980s and early 1990s, the S&P futures often traded limit down. There was no Globex market or Eminis back then.
I do not ever remember it opening limit down. Limits were created to stop a crash. The hope is that traders will reevaluate and not sell endlessly all day in a panic like they did in the October 1987 Crash. I began my day trading career a month before that crash.
What happens after a limit down move?
The limit for the Globex market is 5% down. For the day session, there are additional limits below at 7%, 13%, and 20%. There are additional rules depending on the time of day. Emini trading resumes once trading resumes in the cash equity market.
What typically happened 30 years ago after a limit down move was that the S&P futures eventually reopened at a much lower price. Some traders would see it as exceptional value and buy. Many bears would see it as a brief opportunity to take incredible profits. They too would buy. This buying created enough confusion to result in 2 sided trading and it prevented another crash. There would sometimes be a bull trend later that day or the next day.
But this is bearish, as is the entire selloff from the all-time high. While climactic, there is no bottom yet. Traders should expect lower prices over the next month or more.
There were days when the S&P 500 Futures fell to the next limit down level. I think there was one day that hit the 3rd level, but I am not sure.
Most traders should not trade limit down days
Today is going to be very stressful and unusual. Most traders should not trade unless the day begins to behave normally again.
Traders have to be very careful about buying. Most traders should only buy if there is a strong bull trend reversal. Even then, they must get out before the bear trend falls to the next limit down level. It would be horribly stressful to be long and then have the market stop when you have a big loss and no way to get out. You cannot be sure that the market will even open again today. Once it reopens, it could open very far below. You would have an unbelievably big loss.
I said last week that the odds of a bear market were now more than 50%. If the Emini falls 20%, which is the definition of a bear market, the average loss is 28% before the selling ends.
I also wrote a week ago that there was a 30% chance of a 30 – 50% correction. If the market hits 20% down this week, the odds of a 30 – 50% correction would be 50%.
Be careful and trade very small, if at all.
Overnight Emini Globex trading
The Emini is down 5% in the Globex session and trading has been halted. There will be a big gap down on the daily and weekly charts. Most traders should not trade at all today. Experts will trade small and will be very quick to get out of any trade, but especially out of longs.
Emini 5 Min Chart
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. I rarely also show limit order entries and entries on the close of bars. Buyers of the Brooks Trading Course and Encyclopedia of Chart Patterns have access to a much more detailed explanation of the swing trades for each day.
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.
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.