Trading Update: Wednesday February 2, 2022
Emini pre-open market analysis
Emini daily chart
- The Emini reversed up strongly last week from below the October low, which was the bottom of the 6-month trading range. But the V-bottom rally might stall soon.
- The January selloff was also a test of the 200-day MA and the bottom of a bull channel on the weekly chart. The bottom of the channel is a line that is parallel to the top of the channel and then attached at the March 3, 2020 pandemic low.
- Last week, I said that there would be a rally lasting at least a couple weeks and going above the December 3 low. That was the most important breakout point on the way down. When the market is in a trading range, there is usually a pullback beyond breakout points.
- Traders are deciding if the rally will continue up to a new high without more than a 3-day pullback (V-bottom, like December 2018 and the pandemic bottoms), or if there will be a 2nd leg down.
- The rally is strong enough to continue up in a V-bottom reversal.
- However, there are 2 problems with this. First, the Emini is still in a trading range, and most legs up and down disappoint traders expecting a trend. Most strong legs reverse.
- Next, the January selloff was unusually strong. That makes at least a small second leg sideways or down likely.
- However, if there are several more big bull days over the next couple of weeks, the odds will favor a V-bottom reversal up to a new high.
- Remember, I have been saying that the Emini should sell off early in 2022 and then rally to a new high later in the year. That is still true, but the new high could come within a couple months if the rally continues up.
- On the monthly chart, there are now consecutive OO patterns in a bull trend. Also, January closed below its midpoint. These factors increase the chance of a 2nd leg sideways to down, possibly to the 20-month EMA and the 4,000 Big Round Number.
- With January closing in the middle of its huge range, there is an increased chance February will be an inside bar on the monthly chart. It might even have a bull body.
- Unless February is a big bull bar, traders should expect a 2nd leg sideways to down, like in the 2018 October to December pullback.
- What about a crash? Crashes are rare so don’t worry about them.
- The best the bears will probably get is a test below the 4,000 Big Round Number this year. That would be about a 20% correction.
- They currently have a 50% chance, but the odds will drop quickly if the rally continues up for another week or two.
- 3 consecutive bull bars is becoming extreme. Also, the Emini is back to the 20-day EMA and a 50% retracement of the January collapse. These factors increase the chance of some profit taking and 2 to 3 days sideways to slightly down trading starting soon.
- The bears want a resumption of the bear trend.
- If Russia invades the Ukraine, there will probably be a 2nd leg down. But they won’t consider invading until late February, after the Winter Olympics. Otherwise, they will lose China’s political support.
- The concern over the invasion is an overhang that should prevent the rally going straight up to a new high during the Olympics.
- However, the reversal up is strong and there is no sign of it pausing. Traders are betting on at least slightly higher prices.
- Since there are now 3 consecutive bull days and the daily chart is still in a trading range, there will probably be a 2- or 3-day pause or pullback soon. The Emini might even go sideways until after the Olympics. At the moment, odds favor at least a little higher.
Emini 5-minute chart and what to expect today
- Emini is up 28 points in the overnight Globex session.
- Today is the 4th day in the bull trend reversal. Traders have been buying aggressively and they might buy more again today.
- However, the daily chart is still in a trading range, and a 4th big bull day would be fairly climactic. The bulls will probably take profits within a few days. That should result in a few sideways to down days.
- Yesterday was in a tight trading range for most of the day. It came 3 days into a rally, which is late. It therefore might be the Final Bull Flag, and it is therefore a magnet below.
Yesterday’s Emini setups
EURUSD Forex market trading strategies
EURUSD Forex daily chart
- The EURUSD Forex market reversed up from below its 9-week tight trading range after failing to breakout above it in mid-January.
- Today so far is the third consecutive bull day and the EURUSD is just above a 50% retracement of the last leg down.
- The next magnet for the bulls is the January 20 lower high, which was the start of the parabolic collapse at the end of the month.
- Yesterday was a bull day after Monday’s big reversal up. That follow-through increases the chance of at least a small 2nd leg sideways to up.
- The bears are hoping the this week’s bounce will form another lower high in the yearlong bear channel.
- The bulls want the reversal up to be the start of a bull trend lasting several months.
- But they will need many more bull trend bars and a strong break above the January 14 lower high before traders will believe that a significant bottom is in. Until then traders will continue to bet on new lows.
- Part of the reason behind the selloff from the January 14 lower high is the fear that Russia will invade the Ukraine. But as I wrote above, Russia will not consider invading until after the Olympics, which means late February.
- This takes pressure off for a couple weeks, which should slow the selling, or result in a return to the middle of the 9-month trading range.
- Since there is still uncertainty about the invasion, the EURUSD will probably be mostly sideways for a few weeks.
- The yearlong selloff on the monthly chart has not been as strong as the 2020 rally. It is more likely a pullback from that rally and not a resumption of the 14-year bear trend. Therefore, the bulls should get a rally lasting several months starting within a few months.
- Is this the start? The bulls need a strong breakout above a major lower high, like the January 14 high, before traders will conclude that the daily chart has begun a bull trend.
- At the moment, the bear trend has paused for several months. It has not yet clearly ended.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
End of day summary
- After a gap up, the Emini sold off for a couple hours back down to yesterday’s close.
- It then rallied from a wedge bottom in a Small Pullback Bull Trend to above the January 10 low.
- It reversed down sharply into the close to below the open of the day.
- Today was a bear bar in a buy climax on the daily chart. That increases the chance for a pullback over the next few days.
- However, bulls will buy the pullback for at least a small 2nd leg up after this week’s strong rally.
See the weekly update for a discussion of the price action on the weekly chart and for what to expect going into next week.
Traders can see the end of the day bar-by-bar price action report by signing up for free at BrooksPriceAction.com. I talk about the detailed S&P Emini futures price action real-time throughout the day in the BrooksPriceAction.com on trading room days. We offer a 2 day free trial.
Charts use Pacific Time
When I mention time, 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.