This article is a review of the forecast made by MarketWarrior for the 5 minute S&P500 E-mini contract for Tuesday July 21, 2015. This article uses the word advanced in the title because I am going to describe the analysis I went through during the day to make the decision to recalculate the forecast during the main E-mini trading session. In past forecast reviews, I have calculated the forecast one time as the start of the main trading session approached and then let the forecast stand without change so readers could see how the forecast worked. There are many cases when I decide to recalculate the forecast during the main trading session, so I am going to start writing about the more advanced use of the MarketWarrior E-mini forecast.
The main trading session starts for the E-mini at 9:30 AM ET. As the main trading session approaches, I usually calculate the forecast. I calculate the forecast before the main trading session starts, because the volatile price action at the open often provides a misleading indication of the current day’s cycle. Therefore I try to get a cycle calculation before the main trading session opens. On Tuesday July 21, 2015 at 9:10 AM ET, I calculated the E-mini forecast. This forecast is shown below. On this chart I have manually drawn a red arrow pointing up and labeled A. This arrow shows the direction of the forecast culminating in a forecast top at 9:20 AM ET. The second red arrow points down and is labeled B. This shows the direction of the actual price action. You can see the forecast and the actual E-mini price are already diverging even though the forecast has just been made. This is telling us the forecast was not able to accurately calculate the E-mini cycle and a problem exists. Because of this divergence between the forecast and the E-mini, I decided to take a wait and see approach.
The picture below was taken at 9:55 AM ET and it shows the same forecast seen above. I have manually added a blue dotted line at the forecast top 9:20 AM ET. You can see the top forecast time was the exact time for an E-mini bottom. This E-mini bottom at 9:20 AM ET adds one extra change-in-trend point for MarketWarrior to calculate a more accurate forecast for the rest of the trading day.
On the chart below, I have also added two brown lines. The first brown line connects the forecast tops and is labeled 1. The second line connects the forecast bottoms and is labeled 2. These two brown lines make a low volatility sideways wedge pattern for almost the whole main trading session. This pattern would be unusual for the E-mini, which usually has more price movement than is indicated by this forecast. Because of these two factors, the new bottom CIT at 9:20 AM and the unusual low volatility in the forecast, I decided to recalculate the forecast.
I recalculated the forecast just before 10:00 AM ET and the new cycle forecast is seen below. This forecast has a normal amount of price volatility with a forecast decline down to a bottom at 14:35(2:35) PM ET at the price 2105. The forecast also shows a main trading session with two main swings. First is a decline to 14:35(2:35) PM ET and then a rally to the end of the main trading session. The main trading session ends at 4:14:59 PM ET when the CME Group closes E-mini trading and reopens at 4:30 PM ET. This 15 minute close in trading ends the main trading session. The forecast pattern seen below with two main swings is fairly common in the E-mini as traders will push the market in one direction most of the day but then try to take profits in the last one or two hours.
The picture below shows the same forecast as seen above after the main trading session has ended. The E-mini fell into the 2 PM hour (14:00) and then rallied to the end of the day. The recalculated forecast for the E-mini was in fact the correct cycle forecast for July 21, 2015. By recalculating the forecast at 10 AM ET, MarketWarrior was able to make a much more accurate forecast for the rest of the day. I will be writing more advanced articles about the process I go through when making the decision to recalculate the forecast. The large drop seen at the end of the chart occurred at 4:30 PM ET after the market reopened. Look over the chart below and if you think this forecast would help you trade the E-mini, there is a free trial for both MarketWarrior 5 and DTN IQFeed. You can click here and here to learn more.