Trading Update: Tuesday January 31, 2023
Emini pre-open market analysis
Emini daily chart
- The bears finally got a close below the open and were able to disappoint the bulls, ending the six-day bull streak on the daily chart. Bears follow-through selling wanted today, increasing the odds of a second leg down.
- The bears will see January 25th as a possible final flag and yesterday as a reversal back to the final flag (January 25th) high.
- The market will likely have to test the 4,000 big round number over the next few days. The 4,000 round number has been a magnet for more than eight months and will likely continue to be a magnet.
- The bears hope that yesterday is the third leg in a wedge top (over ten days) and that the market will need two legs down.
- The bulls want to disappoint the bears and create a strong bull reversal bar today or tomorrow.
- More likely, the market will have a couple of days of sideways to down.
- The market is in a trading range, which means when one side begins to look like they are gaining control, such as the bulls over the past week, the opposite happens, and the market reverses.
- The market may have to test down to 3,900 and reach the January 19th higher low. If it does, the bulls will try for a double bottom.
- Traders will pay close attention to today’s follow-through bar. The bears want a strong sell entry bar today, increasing the odds of a second leg down.
- The bulls want a strong bull reversal bar, increasing the odds of the bears getting trapped selling below yesterday.
- Even if today is a disappointing bar for the bears, the market will likely have at least a small second leg down.
- With Wednesday being a FOMC release, the market may try and get as neutral as possible going into the report, which would mean a lot of sideways trading leading up to it.
Emini 5-minute chart and what to expect today
- Emini is down 1 point in the overnight Globex session.
- The bulls reversed up on the Globex chart from the bottom of an extended 15-minute bear channel that began late on January 27th.
- The market is testing the 12:15 AM PT major low high. The bulls want to break strongly above it. With the bulls going above it, that will increase the odds that the market is in a trading range and no longer in a bear channel.
- While the early morning Globex hours have had an impressive 15-minute rally, the odds still favor a trading range forming instead of a bull trend. This means the upside is likely limited.
- The bulls have a strong 5:45 AM PT bull breakout bar, but the size of the bar increases the risk that it is a buy climax and will lead to more sideways trading.
- Traders should expect a lot of trading range price action on the open. This means most traders should consider waiting for 6-12 bars before placing a trade.
- Most traders should try and catch a swing trade on the open. There is an 80% chance of a swing trade beginning before the end of the second hour. Often, the swing trade will happen after a double top/bottom or a wedge top/bottom, which means traders should look for one of these patterns.
- With today being the month’s final day, traders should be open to a surprise breakout up or down late as the market decides on the close of the monthly chart.
Emini intraday market update
- The Emini formed an expanding triangle over the first 9 bars of the day.
- The bulls got a bull breakout and follow-through at 7:15 AM PT that was strong enough to have at least a second leg up.
- The bulls have gotten at least three legs up following the 7:15 breakout. This increases the odds of a couple of legs down, and the market is transitioning into a trading range.
- While the market has been Always In Long since 7:15, the rally to the 8:08 AM PT high looks like a bull leg in a trading range. This will increase the odds of the market getting a couple of legs sideways to down.
- While the bulls can argue that the market is in a small pullback bull trend, the gaps on the way up are closing, and the bars overlap. This increases the odds that the market is in a bull leg in what will become a trading range, more than a bull trend that will last all day.
- The rally-up is strong enough that the market has probably seen the day’s low. This means the best the bears can expect is a bear leg in a trading range.
- Traders should also be mindful of a test back to the middle of the expanding triangle that formed on the first 9 bars.
- The lower probability outcome would be if the bulls can form an opening gap and the small pullback bull trend continues for several more hours. More likely, a trading range will develop.
Yesterday’s Emini setups
Al created the SP500 Emini charts.
EURUSD Forex market trading strategies
EURUSD Forex daily chart
- The EURUSD sold off in the early morning hours and came close to reaching the moving average.
- While there will likely be buyers at the moving average, traders should be mindful that the market may be at the top of a developing trading range. This means that the pullback may not stop at the moving average.
- If the market does hesitate at the moving average, the hesitation may be brief and lead to lower prices.
- While the odds favor the further formation of a trading range and a test down to the year’s low, the bears need to develop more selling pressure.
- The bears have three consecutive bear bars, which is strong enough to increase the odds of hesitation, but they have not yet done enough to convince traders that the market will reverse down.
- As long as the bears are unable to break below the moving average, bulls will continue to buy at the moving average, betting on higher prices.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
Al created the SP500 Emini charts.
End of day review
- The Emini rallied and formed a small pullback bull trend. While the bears tried several times to reverse the market, they continued to fail at the moving average.
- The bears tried to get a downside breakout early in the day.
- However, the market formed a double bottom and led to a bull trend for the rest of the day.
- The most important thing on a day like today is to realize that the bears are unable to make money selling below bars for most of the day. The easiest way to see this is to notice how much time the market spends above the moving average.
- The moving average is a fair price; if the market spends a lot of time above the moving average, the bulls are willing to pay more than the average.
- When the channel up is tight, most traders should wait for a trendline break of the bull channel and a retest of the high before looking to sell.
- The bears could not form a credible major trend reversal top for the entire day. Because the reversals were likely minor, the bulls were buying below bars and scaling in lower, betting on a trading range, not a bear trend.
- Overall, today was a good day for the bulls, and they got a strong finish by the end of the month.
- Tomorrow is the FOMC report. Traders should expect the market to become neutral going into the report.
- Traders should stop trading at least 30 minutes before the release of the report and wait for the close of the 2nd bar after the report before trading.
- Most FOMC reports have a lot of trading range trading, so traders need to be cautious.
- Also the FOMC report also typically has big bars, which means traders should trade small.
See the weekly update for a discussion of the price action on the weekly chart and for what to expect going into next week.
Charts use Pacific Time
When times are mentioned, it is USA Pacific Time. The Emini day session charts begin at 6:30 am PT and end at 1:15 pm PT which is 15 minutes after the NYSE closes. You can read background information on the market reports on the Market Update page.