Trading Update: Tuesday January 3, 2023
Emini pre-open market analysis
Emini daily chart
- The Emini ended the year at the midpoint of the two-month rally that began on October 13th.
- The bulls are trying to form a double bottom higher low major trend reversal with the November low. At a minimum, the bulls want to reach the December 6th low. Next, they want a strong upside breakout and a test back to the December 13th high.
- At a minimum, the bulls want to get back to the December 6th breakout point low. This is where bulls got trapped, fading to the bottom of a trading range.
- The bears want any upside breakout to be minor and lead to sideways trading. They want a second leg down from the five consecutive bear bars ending on December 19th and a test of the October low.
- Since the daily chart is in a trading range, traders should expect any rally to disappoint the bulls, just like the follow-through after the December 19 selloff disappointed the bears.
- The odds favor a rally back to the December 6th low over the next week or two. The rally will also likely test the 4,000 big round number as well. This has been a magnet for the past seven months and will likely continue to be a magnet this year.
- Another target for the bulls is the top of the bear trend line from January 2021 all-time high and March 29, 2021. The rally up to December 13th came close to reaching the trendline but failed. The bulls will see this trendline as a magnet.
- Overall, the bulls see a large bear channel on the daily chart. The bulls want the current price action to lead to a higher low major trend reversal and a rally back to the December 13th high.
- Some traders will see the past few trading days as the right shoulder in a head and shoulders bottom with the left shoulder beginning in June 2021. The bears want a downside breakout and test of the October low. That would form a large wedge bottom on the daily chart (June 17th, October 13th).
Emini 5-minute chart and what to expect today
- Emini is up 23 points in the overnight Globex session.
- The Globex market has been in a trading range for the past 12 hours.
- While today will gap up, traders should expect a lot of trading range trading on the open.
- Most traders should consider waiting for 6-12 bars unless they are comfortable using wide stops and limit order trading.
- If a trader prefers to enter on a stop entry, they can wait for a double top/bottom or a wedge top/bottom.
- The most important thing on the open is to be patient and not rush. If the market does not look quite right, wait. There will always be another trade setup later.
- Lastly, traders should pay close attention to the first 6 bars of the day. If there is a lot of buying and selling pressure, it will lower the probability of a trend day. If the market appears one-sided, there will be an increased risk of a trend day.
- The market formed consecutive inside bars at 7:10 AM PT, which is a logical place for the market to test before it goes sideways.
Emini intraday market update
- The market gapped up and formed and got follow-through buying on bars 1-2. The bears reversed the market down on bar 4, closing below bar 1, trapping the long bulls.
- I am writing this at 7:40 AM PT, and the bears are doing a good job developing much selling pressure on the day.
- The odds are that the market will form a bear trend or a trading range day and not a bull trend day.
- With the selloff being as climactic as it is, the odds favor more sideways than much more down, at least for the next several hours.
- It is common to see a climactic selloff or rally on the open that leads to a tight trading range for several hours, and the market decides on trend resumption or trend reversal late in the day.
- The market may go sideways for the rest of the day.
- Traders will pay attention to how deep the pullback is to determine where the top of the trading range will be.
- The bulls need to develop more selling pressure before they get a chance to create a deep pullback. That means that the odds favor sideways for the next couple of hours.
Yesterday’s Emini setups
Brad created the SP500 Emini charts.
EURUSD Forex market trading strategies
EURUSD Forex daily chart
- The EURUSD reached the measured move target (purple line) based on the November 11th two-bar breakout and reversed down to the moving average.
- January 2nd formed a wedge top at important resistance (Measured move target mentioned above). It led to a sell vacuum test of the moving average.
- I mentioned several times that the market was spending too much time away from the moving average, which would limit the number of bulls willing to buy and hold a position. This created a special situation where both bulls and bears would sell aggressively at any new high (especially at the measured move target), betting that the market would have to reach the moving average.
- The more extended the market spent away from the moving average, the more bulls and bears would see the market as overbought. Eventually, the only traders left were momentum bulls buying. As soon as those momentum bulls stopped buying, the market had to sell off to a price level where bulls would buy again, such as the moving average.
- Today’s selloff is a surprise bar. It is a big bear breakout bar, and although it is at support (moving average), it is strong enough so that the odds will favor a second leg down.
- Overall, the bears will probably get a small second leg down. Traders will pay close attention to see how today’s bar will close. Next, traders will see if the bears can get follow-through.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
Brad created the SP500 Emini charts.
End of day review
- I will update at the end of the day.
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.