Trading Update: Wednesday February 1, 2023
Emini pre-open market analysis
Emini daily chart
- The Emini had a strong bull close yesterday, closing the month near its high.
- The bulls want FOMC to rally market to get above the December 13th high. Today is an FOMC day, so the market may get above it during today’s report.
- The bulls see Monday (January 30th) as a test of the January 25th buy signal bar high, which was the entry price to the High 1 buy.
- The bulls want to get a strong follow-through bar today after yesterday’s bull close.
- While the bulls have seven bull bars out of the past nine bull bars and are winning in terms of time, the bull closes have a lot of overlap. This is a sign of trading range price action.
- The market may be so close to the December 13th high that it will be unable to escape the gravitational pull.
- The December 13th high has been an important magnet for some time, and now the odds are the market will go above its high in the next couple of days.
- It is common for the market to reverse down from just under an important magnet like the December 13th high as it did on January 27th. The market formed a wedge top on January 27th; however, traders questioned if the December 13th high was adequately tested.
- Since the December 13th high was likely not adequately tested, the market is pulled up to it. If everyone believes that the market is going above the December 13th high, nobody is going to sell right below it.
- This means there is potential to get a strong upside breakout above the December 13th high; however, more likely, there will be sellers at its high, and the market will go sideways.
- The bears will argue that a rally above the December 13th high is just a complex two-legged pullback that began at the October 2022 low. Those bears will see the August 2022 high as the major lower high and December 13th as a minor lower high because it did not make a new low.
- The most important thing to remember is that the range on the daily chart is contracting. This means the market is forming a triangle which is a form of a tight trading range and breakout mode.
- Most traders should wait for more clarity, which often happens in the form of a strong breakout with follow-through.
Emini 5-minute chart and what to expect today
- Emini is down 6 points in the overnight Globex session.
- The Globex market has been going sideways since the late rally into yesterday’s close.
- The odds favored a trading range forming after yesterday’s consecutive buy climaxes, which is why the market is now forming a trading range.
- Today is a FOMC statement day, and the market may try to get neutral going into the report release at 11:00 AM PT.
- Traders should expect a lot of trading range price action on the open and leading up to the report.
- As always, most traders should consider not trading for the first 6-12 bars of the day unless they are comfortable with limit orders.
- The market, most of the time (80% or more), will have a swing trade that begins before the end of the second hour. Most traders should try and catch the opening swing trade instead of fading breakouts with limit order.
- The opening swing will often begin after a credible double top/bottom or wedge top/bottom has formed.
- By trying to catch the opening swing trade, a trader is positioning themselves to take a trade that has the potential to laws an hour or two and have a couple of legs in the direction of the move. This often provides good risk/reward with decent probability.
- If a trader wants higher probability, they can wait for a credible breakout with follow-through.
- Traders should stop trading at least 30-45 minutes before the report is released at 11:00 AM PT.
- When the report is released, traders should not trade before the close of the second bar. This is because the FOMC bar can often be a big trend bar that will completely reverse on the next bar.
- Traders need to trade small during the FOMC report. The bars are often big, and it is easy to take a very big loss if one is not careful and does not reduce their position size when the report is released. In general, traders should consider trading 20% of their normal position size when the report is released.
Emini intraday market update
- The Emini opened and rallied, testing yesterday’s close, and reversed down from a parabolic wedge.
- The bears got a strong bear reversal bar on bar 7, an outside down bar.
- Even though the market was in a trading range and forming an expanding triangle on the open, bar 7 was strong enough to get a second leg down, which is why the market sold off down to bar 18.
- The bears see yesterday’s 12:30 PT higher low as an obvious higher low late in a bull trend that will likely get testing.
- The bulls want to prevent the market from falling below yesterday’s 12:30 higher; however, with the market converting into a trading range, they will likely be unable to prevent the bears from going below it.
- With yesterday’s rally being so climactic, traders should expect a trading range to begin before the end of the 2nd hour.
- I am writing this at 8:10 AM PT, and at the moment, it looks like the bears will get a second leg down and get closer to yesterday’s 12:30 higher low. After the second leg down, the market will probably begin to go sideways until the report.
- Since the market is likely in the trading range, traders should be aware that the bulls who bought the bar 8 low during the 7:50 AM PT bear breakout will probably make money.
Yesterday’s Emini setups
Al created the SP500 Emini charts.
EURUSD Forex market trading strategies
EURUSD Forex daily chart
- The EURUSD is continuing to rally in a small pullback bull trend.
- The bears are not yet doing enough to convince traders that they are strong enough to convert the market into a trading range.
- While the odds favor this small pullback trend soon converting into a trading range, it is important to be patient. Small pullback trends can last a very long time and rally for more bars than what seems likely.
- What I have been saying about the weekly chart still holds true. That has been in a tight bear channel since mid-2021. The rally from October 2022 was the first strong trendline break of the bear channel.
- Typically, bear channels convert into trading ranges and not bull trends. This means that as strong as the rally looks on the weekly chart, the market will likely have to have a deep pullback, at least to the 1.0500 price level, and form a higher low major trend reversal.
- While the rally on the weekly chart may be a major reversal (V-Bottom) that will not form a higher low major trend reversal, the odds are against it.
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
- 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.