Market Overview: Weekend Market Analysis
The SP500 Emini futures January monthly candlestick was an outside down bear bar with a long tail below. It closed slightly below the middle of the bar and is a sell signal bar for February. However, the long tail below makes it a weaker sell signal bar. The bar after an outside bar sometimes is an inside bar.
If February closes as an inside bar, there would be an ioi (inside-outside-inside) pattern which is a breakout mode situation. The Emini is currently trading in the middle of the 7-month trading range and is an area of balance. Traders are still deciding whether the recent rally is a pullback from January’s selloff or a resumption of the bull trend. Lack of clarity is the hallmark of a trading range.
The EURUSD Forex was a Bull Surprise Bar after last week’s strong breakout below the tight trading range and below June 2020’s low. It is a failed breakout below a potential final bear flag. The bulls will need to create strong follow-through buying far above the January 14 high to convince traders that a reversal higher is underway. The bears hope that this is simply a buy vacuum test of the trading range high and want a re-test of the trading range lows and a continuation of the 700-pip measured move lower.
S&P500 Emini futures
The Monthly Emini chart
- The January monthly Emini candlestick was an outside down bar with a long tail below after an outside up December. It closed above the December low but slightly below the middle of the bar. It is a slightly bearish bar.
- However, the long tail below indicates that the bears are not as strong as they would have liked to be.
- January is the second OO (outside-outside) pattern after the October OO and the market is in a Breakout Mode. 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.
- February currently is a small inside doji bar. Sometimes the bar after an outside bar is an inside bar.
- 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 in the middle of a 7-month trading range. This is an area of balance. Traders are still deciding whether February or March should trade above or below January’s range.
- 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 said that the issue of Russia invading Ukraine is already priced in. If there is a surprise either way, there will likely be a strong breakout in either direction.
- Al has also 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.
The Weekly S&P500 Emini futures chart
- This week’s Emini weekly candlestick was a bull bar with a long tail above. While the bulls got follow-through buying this week, the weekly candlestick closed slightly below the middle of the bar and has a long tail above which indicates that the bulls are not as strong as they could have been.
- This week triggered the high 1 buy signal by trading above last week’s high.
- 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.
- 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.
- However, a 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 bulls see the selloff in January as a bear trap and a sell vacuum test of the bottom of the 7-month trading range.
- Since this week closed slightly below the middle of the bar and has a long tail above, it is not a strong buy signal bar for next week. Because of the strong reversal up from the bottom of the 7-month trading range, traders expect at least a small second sideways to up leg next week.
- The bulls want consecutive bull bars closing near their highs. If they get that in the next 1 to 3 weeks, it can lead to a retest of the trend extreme.
- Can next week be a big bear bar closing near the low? The selloff in January was strong enough for traders to expect a second sideways to down leg lower after a pullback (bounce). For now, the bounce may still have another week or two to go.
- Traders are still deciding if the rally in the last 2 weeks was a pullback from the January collapse or a resumption of the 2-year bull trend. The Emini is trading around the middle of the 7-month trading range and that is an area of balance. Lack of clarity is the hallmark of a trading range.
- 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.
The Daily S&P500 Emini futures chart
- The Emini broke above the tight trading range and tested the December low and the 100-day moving average. There was a pullback on Thursday, and Friday closed as an Almost Outside Up Day.
- Friday’s candlestick has a bull body, but it has a prominent tail above. It is a high 1 buy signal bar on the daily chart, but because of the small bull body and prominent tail above, it is a lower probability buy signal bar. That increases the chance of another sideways day on Monday.
- The rally from January 28 was strong enough for traders to expect at least a small second leg sideways to up next week.
- Traders are still deciding if the rally is a pullback from the January collapse or a resumption of the 2-year bull trend. So far, this is a continuation of the 7-month trading range.
- The Emini is trading around the middle of the 7-month trading range and that is an area of balance. Lack of clarity is the hallmark of a trading range.
- The bulls see the recent 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 selloff from the wedge top was stronger than all prior pullbacks since the pandemic crash. The move down from the high is in a tight bear channel which means strong selling.
- 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.
- The bears want a reversal from a lower high which will be the right shoulder of a 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.
- Slightly less likely, the pullback (bounce) will turn into a V-Bottom testing the trend extreme like the one in October 2021. However, if the bulls get a series of consecutive bull bars closing near their highs in a tight bull channel, it can change the odds in the bull’s favor.
- The Emini has the shape of an expanding triangle since September. The first of the legs are September 2, October 4, January 4, and January 24. If the bulls get a new high, it will be the 5th leg in the expanding triangle top.
- 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.
- For now, 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.
- Should the second leg sideways to up be weak and stall at some resistance above, traders will then expect the second leg sideways to down following January’s selloff to begin soon.
EURUSD Forex market
The EURUSD monthly chart
- January’s candlestick was an outside bear bar with tails above and below. It is a breakout bar. It is both a buy and sell signal bar.
- Because it has a bear body closing in the lower half of January’s range, it is a weak buy signal bar.
- Last month, we said that December’s inside bar after a wedge in a protracted bear trend often is the final bear flag of the bear leg. That means the EURUSD may trade slightly lower but may not go much further before there is a reversal higher again.
- January broke below December’s low late in the month but did not close at the low. February reversed back up and traded slightly above January’s high. It is currently a bull bar with a small tail above.
- The bears want a continuation of the 700-pip measured move lower based on the height of the yearlong trading range. It is still early in the month and there is still enough time for the EURUSD to trade below January’s low.
- The bulls want a reversal higher from failed breakout below a final bear flag. They hope that the selloff the whole of last year is simply a pullback from last year’s breakout above the bear trend line.
- The bulls need to create strong bull bars closing near their highs in the next 1 to 3 months to convince traders that a reversal higher is underway.
- Al has been saying that EURUSD is in the middle of a 7-year trading range and the selloff was climactic. That makes it likely to go sideways to up for a couple of months, whether it ultimately breaks below last year’s low and the bottom of the 7-year range. So far it has traded sideways for almost 3 months.
- If there is a reversal up within a few months, the 7-year trading range will be a triangle, beginning with the 2017 low.
The EURUSD weekly chart
- This week’s candlestick on the weekly EURUSD Forex chart was a Big Bull Surprise bar closing near its high. It reversed the prior 2 big bears and traded slightly above January’s high.
- The bears failed to get follow-through selling following last week’s big bear breakout bar.
- We have been saying for weeks that a tight trading range late in a trend often is the final flag of the move. Even if there is a break below the 7-week trading range, odds are it might be the final flag of the bear leg. The EURUSD may then test below June 2020 low before there is a stronger reversal higher from a lower low major trend reversal. The EURUSD reversed higher this week after trading below June 2020’s low late in January.
- So, is this the start of the bull trend?
- The bulls will need to create follow-through buying in the next 1-3 weeks breaking far above the January 14 high to convince traders that a reversal higher towards October 28 high or higher lasting a few months is underway.
- 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.
- Al said that the EURUSD has been sideways for 7 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 7-year range.
- This week’s rally was strong enough for traders to expect at least a small second sideways to up leg.
- The bulls will need at least another follow-through bar next week to convince traders that a move higher may be beginning.
The EURUSD daily chart
- The EURUSD rallied the whole week following last week’s breakout below the tight trading range. The bears failed to get follow-through selling and this week was a reversal higher following a failed breakout below a potential final flag.
- Friday traded slightly above January 14 high. The whole rally this week was strong enough for traders to expect at least a small second leg sideways to up move after a pullback.
- The bulls will need to get consecutive bull bars trading far above the January 14 high to convince traders that a reversal higher is underway.
- The first target for the bulls is a breakout above the October 12 low, which was the breakout point for the November collapse.
- Al said that the most important target for the bulls is the October 28 major lower high. If the bulls break strongly above that, then the yearlong bear trend will have ended. The daily chart would then either be in a trading range or a bull trend.
- The bears hope that the strong rally was simply a buy vacuum test of the top of the 2-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.
- They want the breakout above the 2 months+ tight trading range to fail. They then want a test and breakout below January’s low followed by a continuation of the 700-pip measured move lower.
- The EURUSD has been in a tight trading range for more than 2 months. Traders should expect reversals are more likely than breakouts.
- For now, odds slightly favor at least a small second leg sideways to up after a pullback.
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