Trading Update: Friday January 6, 2023
Emini pre-open market analysis
Emini daily chart
- The five-bar bear breakout that began on December 13th is strong enough for the bears to get a second leg down.
- The bulls got a strong upside breakout during the Globex session, which increase the odds of today being a bull trend day.
- Since the market is in a trading range, the pullback may be deep, testing the December 6th low before the bears get their second leg down. If this happens, the second leg down would likely be more sideways around the December 23rd low if it gets there.
- Bulls got trapped buying the December 6th trading range low during the bear breakout and want the market to retest this price level and let the bulls out at their original entry with a profit on their scale in.
- The bulls are hopeful that they can get a strong reversal up, trapping all the bears who sold the December 13th five-bar bear breakout, betting on a second leg down.
- If the bulls can get a strong reversal with consecutive bull trend bars closing near their highs with micro gaps, that would increase the odds of the market testing the December 13th high.
- With all the trading range price action over the past several months, the odds are that the market will reach the middle of the month-long trading range that started around November 15th. The market may have to get a second leg down first, testing the November low, before it can rally to the December 6th low.
- Overall, the bulls want the past ten trading days to form a higher low major trend reversal and test up to the December 13th high. The bears want a lower high and second leg down from the December 13th selloff. Since the market is in a trading range, continued sideways is more likely.
- Most traders should wait for a clear breakout of the 10-day tight trading range.
Emini 5-minute chart and what to expect today
- Emini is up 35 points in the overnight Globex session.
- The Globex market has been in a tight bear channel, testing near the lows of yesterday’s trading range.
- The bulls just got a 50-point strong upside breakout during a 5:30 AM PT report. Breakout had a very deep pullback, which increase the odds of more sideways trading.
- As always, traders should assume the market will have a limit order trading on the open and go sideways. Most traders should wait for 6-12 bars before placing a trade unless they are comfortable with limit orders.
- If traders before stop orders, they can consider waiting for a double top/bottom or a wedge top/bottom before placing a swing trade.
- Most traders should look for swing trades on the open since one typically happens within the first 2 hours of the day.
- If a trader wants higher probability, they can wait for a credible breakout with follow-through and enter for a second leg of the breakout.
- Today is Friday, so weekly support and resistance are important. The market is near the close of last week (3,861). This price level may be a magnet all day. The bulls want today to be a strong bull trend day and open of the day, which is only 30 points away from the current price. The bears want the opposite and keep the week closing below the open and possibly below the week’s midpoint.
Emini intraday market update
- The Emini formed a big bull bar on bar 1 and got a big two-bar breakout on bars 2 and 3.
- While bar 2 was a strong bear trend bar, bulls bought below bar 1 and scaled in low, which is why the market had a sharp reversal u during bar 5.
- Bar 1 was a big enough bar to increase the odds of sideways and limit the downside.
- Bars 2 and 3 are big enough to limit the upside. At the time of writing this at 8:10 AM, the market is breaking out far above the high of bar 2.
- The odds favor a test back down to the high of bar 2 sometime soon. While the day may remain a bull trend day, more likely, the market is forming a parabolic rally that will transition into a trading range and test the high of bar 2 and the open of the day.
- The bears are trying to form a wedge top with 8:15. It is reasonable for bulls to exit here and wait for a couple of legs at a minimum. Most bulls do not want to buy this high above the open of day and high or bar 2.
- Bar 2 is a surprise bar that will influence the market for the rest of the day. This means that there are sellers above bar 2, scaling in higher, and they will probably be able to exit their trade at the high of bar 2. The bulls want to prevent this. However, they will unlikely be able to do so.
Yesterday’s Emini setups
Brad created the SP500 Emini charts.
EURUSD Forex market trading strategies
EURUSD Forex daily chart
- The bears achieved the goal of a second leg down after the January 3rd bear breakout.
- There are probably buyers not far below the January 3rd low, and the market will begin to go sideways.
- The market has been in a bull channel since November 21st and bull channels typically evolve into trading ranges and not bear trends, which means sideways is most likely.
- Also, the bears were unable to get immediate follow-through selling after January 3rd. This will increase the odds of more sideways here.
- Lastly, it was reasonable to buy the moving average during the January 3rd selloff. Those bulls who bought the moving average with limit orders are likely willing to scale in lower, increasing the probability of more sideways trading.
- Overall, the market will probably go lower and get closer to the November 30th or November 21st low (bottom of the channel); however, the market may have to go sideways for some time first.
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
- Today, gapped up and sold off with two big bear trend bars.
- The odds favored a second leg down; however, bar 2-3 ended up being a bear trap and led to a small pullback bull trend for the rest of the day.
- Most bears would be quick to exit after bar 7, which happened during the bar 8 big bull trend bar.
- The rally up around 7:20 AM PT testing the bar 2 high was tight; however, it lacked consecutive strong trend bars, indicating climactic behavior. This increased the odds of going sideways for several hours.
- The rally that stalled around 8:00 AM PT was very tight and dangerous to short. With the rally being climactic most traders would step aside to see what the bears could do.
- The bulls got a 20-gap bar buy setup that led to an endless rally and strong breakout above the trading range that began around 11 AM PT.
- It is essential to realize that during the small pullback bull trend, the bears could not get strong consecutive bear closes. This is a common sign that the small pullback bull trend will likely continue.
- Today was a strong bull breakout on the daily chart. The bulls want follow-through, testing the December 6th high over the next couple of days. The bears want to trap the bulls into buying high in a tight trading range on the daily chart.
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.