Market Overview: Weekend Market Analysis
The SP500 Emini futures formed a second leg higher but reversed with bear bar closing near low on the weekly chart. The bears want this to be the start of the second leg sideways to down following January’s sell-off. The bears will need next week to be another bear follow-through bar to increase the odds of a test of January’s low. The bulls want next week to be a bull bar, even if the Emini trades lower first.
The EURUSD Forex traded above January 14 and February 4 double top but there was no follow-through buying. The bulls see this week simply as a deeper pullback that is less than a 50% pullback from the strong rally off January’s low. The bulls want another leg sideways to up to re-test the January 14 and February 4 highs.
The bears want a reversal down from the double top (January 14 and February 4) to below the January low. Additionally, they want a breakout below that low and then a 300-pip measured move down to around the bottom of the 8-year trading range. If Russia invades Ukraine and Europe handles it poorly, the EURUSD could test the bottom of the 8-year range.
S&P500 Emini futures
The Monthly Emini futures chart
- The February monthly Emini candlestick currently is a bear inside bar trading near the low. It followed the second OO (outside-outside) pattern after the October OO and the market is in Breakout Mode. Sometimes the bar after an outside bar is an inside bar.
- Consecutive attempts at a top late in a trend have an increased chance of a reversal down. January is the sell signal bar for the OO. If February or March trades below the January low, it will trigger the OO sell signal.
- Al has said that due to the back to back OO, traders should expect a break below the January low before a break above the January high. A 2nd attempt has a higher probability of success. That would trigger the OO sell signal on the monthly chart and the selloff would probably last 2 to 3 months.
- The bears want a breakout below January and a measured move based on the height of the OO which will take them to around 3600. However, while January closed slightly below the middle of the bar, it has a long tail below. That is not a strong sell signal bar. Selling below a moderate sell signal bar at the bottom of a 7-month trading range may be risky if more traders think the trading range is more important and would, therefore, BLSH (Buy Low Sell High).
- The bears will need February to close as another bear follow-through bar below January’s low to convince traders that a deeper correction is underway.
- The bulls see the January selloff as a long-overdue pullback. They want a reversal higher from a double bottom bull flag with the October low and a retest of the trend extreme and a subsequent breakout to a new high.
- The Emini is currently trading slightly below the middle of the 7-month trading range. If the bears get another 2 to 3 days of strong trend days, they may be able to test the January low soon after.
- Al has said that the bull trend on the monthly chart has been very strong. Even if it sells off for a 10 to 20% correction, that would still only be a pullback on the monthly chart (even though it could be a bear trend on the daily chart) and not continue straight down into a bear trend.
- The best the bears will probably get on the monthly chart is a trading range for many months to around a 20% correction down to the gap on the monthly chart below April 2021 low and around the 4,000 Big Round Number
- We have said that this rally is overextended and there is a likely micro wedge forming which makes it less likely that it will continue up throughout 2022 without a pullback. January was the pullback.
- Most pullbacks since the pandemic crash only lasted 1 month (Jan 2021, Sept 2021, Nov 2021) except for Sept-Oct 2020 which lasted 2 months. (On a side note, there was a lot of uncertainty during Sept-Oct 2020 period leading into the election between Trump vs Biden.)
- Will February be a consecutive bear bar? Or will January be another 1-month pullback on the chart?
- Al has been saying that the bull trend from the pandemic crash has been in a very tight bull channel. The first reversal down will probably be minor even if it lasts a few months.
- The gap up in April 2021 could lead to a measured move up to 5,801.5 before the bull trend finally ends.
- However, if Russia invades Ukraine this weekend, and especially if Europe has a weak response, the Emini may drop to below 4000 quickly.
The Weekly S&P500 Emini futures chart
- This week’s Emini weekly candlestick was a bear bar closing near the low with a long tail above, closing slightly above last week’s low.
- The bulls tested the February 2 high twice on Wednesday and Thursday but failed to trade above it. The Emini then reversed into a bear bar closing near the low by Friday.
- This week’s bear bar closing near low is a good sell signal bar for next week. The bears will need to create another bear follow-through bar next week to convince traders that a move lower is underway.
- We have been saying that the bears want a second leg sideways to down after any pullback (bounce) from a lower high major trend reversal. It would then be a reversal lower from a head & shoulders (H&S) top where the lower high is the right shoulder. However, an H&S top often is a minor reversal pattern. The 3rd push down from the right shoulder often is the 3rd leg in what will become a wedge bull flag.
- The bears want the pullback (bounce) to have overlapping bars with bear bars closing near the lows and weak bull bars. If they get that, the odds of a strong second leg lower increases.
- The pullback (bounce) so far has overlapping bars (last week and this week). The bull bar last week closed below the middle of the bar with a long tail above, and this week was a bear bar closing near low.
- The bears want the second leg lower from the January sell-off to begin soon followed by a test and a breakout below January’s low.
- The bulls see the selloff in January as a sell vacuum test of the bottom of the 7-month trading range. However, they were not able to create strong consecutive bull bars closing near their highs in the last 2 weeks.
- The bulls want next week to be a bull bar even if the Emini trades slightly lower first. If next week is a big bear bar closing near low, the odds of a test below January low increases.
- We have said that the selloff in January was strong enough for traders to expect a second leg sideways to down after a pullback (bounce). This remains true.
- This week traded below last week’s low, triggering the low 1 sell signal. Since this week is a strong sell signal bar closing near the low, next week should trade at least slightly lower.
- Monday may gap down at the open. Small gaps usually close early.
- Traders will be monitoring the strength of the second leg lower. The more consecutive bear bars closing near their lows, the higher the odds of a breakout below January’s low.
- However, if the second leg lower is more sideways with overlapping bars, bull bars closing near their highs, long tails below and weak bear bars, traders will then conclude that the 2-legged pullback is ending soon.
- The Emini is trading slightly below the middle of the 7-month trading range. Lack of clarity is the hallmark of a trading range.
- The 50-week moving average and the bull trend line are supports below.
- Al has said that the Emini has been in a strong bull trend since the pandemic crash. There have been a few times when the bears got the probability of a correction up to 50%, but never more. The probability of higher prices has been between 50 and 60% during this entire bull trend. It has never been below 50%. That continues to be true.
- The strong selloffs, like in September 2020 and again in 2021, pushed the probability for the bears up to 50%. But every prior reversal has failed, and the bears never had better than a 50% chance of a trend reversal.
- Al has said that the best the bears probably can get this year is a 20% correction down to around the 4,000 Big Round Number. This remains true.
- However, major global events like Russia invading Ukraine can cause the Emini to quickly drop to below 4000.
The Daily S&P500 Emini futures chart
- Last week, we said that odds slightly favor at least a small leg sideways to up following the recent strong rally. Traders will then see whether the bulls can get another consecutive bull bars closing near their highs. Or the Emini stalls at some resistance above and if the second leg sideways to up is weak and stall at some resistance above, traders will then expect the second leg sideways to down following January’s selloff to begin soon.
- The Emini tested the February 2 high on Wednesday and Thursday but stalled and reversed lower by Friday from a double top bear flag and closed below the 200-day moving average.
- We have said that odds slightly favor a second leg sideways to down after any pullback (bounce), probably from a double top bear flag with 2nd February high or January 12 high which was the start of the sell climax. The 50-day and 100-day moving average and the previous bull trend line are resistances above. This remains true.
- After 2 failed attempts to trade higher (last week and this week), the Emini may now go the opposite direction next.
- The bears want a reversal from a lower high major trend reversal which will be the right shoulder of an H&S (head & shoulders) top. They then want a strong break below the 6-month trading range and a measured move down to around 3600 based on the height of the 6-month trading range. However, a H&S top is often a minor reversal pattern. The 3rd leg down from the right shoulder often is the 3rd push down in what will become a wedge bull flag.
- Bears want this to be the start of the second leg lower to test January’s low. They want consecutive bear bars closing near their lows.
- Friday broke below the 8-day trading range. If Monday is another bear bar, especially if it is big and closes near its low, traders will look for a measured move down below the 8-day trading range. That would be a test of the January 28 low and the January low.
- The bulls see the January selloff as a sell vacuum test of the trading range low which started in July 2021. As strong as the selling is, they want the selloff to simply be a bear leg in the developing 7-month trading range.
- The bulls want consecutive bull bars closing near their highs next week, even if the Emini trades slightly lower first. If they get that, traders will see that the second leg sideways to down attempt is weak. It would likely lead to some profit-taking from bears and a stronger reversal higher from a double bottom (either higher low or lower low) major trend reversal around the lower third of the 7-month trading range.
- For now, next week should trade at least slightly lower. Since Friday closed near the low, Monday could gap down at the open. Small gaps usually close early.
- Al said that the entire rally from July looks like a bull leg in what will become a trading range. By trading below October low, traders concluded that the bull trend has evolved into a trading range.
- A trading range in a strong bull trend eventually turns into a bull flag instead of leading into a bear trend. The odds favor a continuation of the trend making a new high probably in the second half of the year or by next year.
- If there is a Russian invasion of Ukraine and Europe has a weak response, it may cause a sharp selloff to below 4,000.
EURUSD Forex market
The EURUSD weekly chart
- This week’s candlestick on the weekly EURUSD Forex chart was a bear bar closing near low. It traded above the January 14 and February 4 double top but reversed back lower.
- The bulls failed to get follow-through buying following last week’s big bull bar.
- The bulls are hoping that this is simply a pullback to be followed by a second leg sideways to up. This week’s bear bar closing near low is a weak buy signal bar for next week.
- Last week, we said that the bears hope that the big bull bar was simply a buy vacuum test of the trading range high. The bears want the EURUSD to stall around the trading range high and bear trend line followed by a test of the trading range low and a continuation of the 700-pip measured move lower which started in October. This remains true.
- This week’s bear bar closing near low is a good sell signal bar at the top of a trading range for next week.
- If the bears get another bear follow-through bar next week, especially if it is big and closes near its low, odds of a test below January’s low increases.
- The bears want a reversal down from the double top (January 14 and February 4) to below the January low. Additionally, they want a breakout below that low and then a 300-pip measured move down to around the bottom of the 8-year trading range. February 4 and February 10 highs also formed a micro double top.
- Al said that the EURUSD has been sideways for 8 years. Since trading ranges resist breaking out, it is still more likely that the whole selloff last year will reverse up for many months before breaking below the 8-year range.
- Al has also said that a break below the 3-month trading range was likely to fail and that the reversal up should last at least a couple of months. This is still true.
- The geopolitical issue between Russia and Ukraine is causing uncertainties in the region. If Russia invades Ukraine and Europe handles it poorly, the EURUSD could test the bottom of the 8-year range.
The EURUSD daily chart
- Last week, we said that odds slightly favor at least a small second leg sideways to up after a pullback.
- The bulls got the small second leg up on Thursday but closed as a doji bar. The EURUSD then reversed lower to close near the low of the week.
- The bulls failed to get follow-through above the January 14 high to convince traders that a reversal higher is underway.
- The bulls hope that this week was simply a larger pullback to be followed by another leg higher next week. The pullback is slightly less than a 50% pullback from the huge rally off the January low.
- We said that the bears hope that the strong rally was simply a buy vacuum test of the top of the 3-months trading range. They want the EURUSD to stall at the bear trend line and a reversal lower from a double top bear flag with January 14 high. This remains true.
- This week’s high also formed a micro double top with February 4 high. While Friday was a bear bar, it has a prominent tail below. It is an average sell signal bar only.
- The EURUSD has been in a tight trading range for 3 months. Traders should expect reversals are more likely than breakouts.
- Al has said that a break below the 3-month trading range was likely to fail and that the reversal up should last at least a couple of months. This is still true.
- However, if Russia invades Ukraine and Europe handles it poorly, the EURUSD could test the bottom of the 8-year range.
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Weekly Reports Archive
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thanks for the report.
I also make weekly and daily reviews and am happy that I also noted the points you mentioned above.
Are there labeling anomalies on the monthly Emini chart near the end?
I agree. I replaced the chart with one that has fewer bars and accurate labels.
Dear Andrew,
The mistake was mine. Thanks for pointing it out.
Have a blessed week ahead!