Trading Update: Friday January 21, 2022
Emini pre-open market analysis
Emini daily chart
- The Emini formed a big bear bar closing on its low and below the December 3 low yesterday.
- That is a break below the 3-month trading range.
- Today is the follow-through day. If it is another bear day, it will confirm the breakout. That would make lower prices likely.
- The bears want a measured move down to the October 4 low.
- January is now an outside down bar on the monthly chart after December was an outside up bar. Consecutive outside bars is an OO (outside-outside) Breakout Mode pattern.
- January is also a sell signal bar for the micro wedge on the monthly chart (there is an actual wedge top on the daily chart).
- If February falls below the January low, it would trigger the OO sell signal and the micro wedge sell signal.
- Traders would look for about a measured move down, based on the January range. Also, they would expect a test of the October low, which was the start of the wedge.
- The selloff should test the 20-month EMA and the 200-day MA.
- It could also test the gap on the monthly chart above the March 2021 high. That is below the 4,000 Big Round Number, and it would be about a 20% correction.
- I have been saying that a 20% correction in the 1st half of the year was about as big a selloff that the bears might get this year.
- I also said the Emini would probably rally in the 2nd half of the year. Will it make a new high? Probably, but it is too early to tell. The Emini instead might enter a trading range for the rest of the year.
Emini 5-minute chart and what to expect today
- Emini is down 30 points in the overnight Globex session.
- Yesterday was a sell climax day. There is therefore a 75% chance of at least a couple hours of sideways to up trading today lasting at least a couple hours and beginning by the end of the 2nd hour.
- The daily chart is the most oversold it has been since the pandemic crash. That reduces the chance of another big bear day today.
- Traders know that most breakout attempts fail. That creates uncertainty and further reduces the chance of another big bear day today.
- The bulls want the breakout below the 3-month range to fail. They would like today to be a strong buy signal bar. That means they want a big bull bar closing on its high. With the market as oversold as it is, that might happen. But since the selloff has been so strong, a strong reversal up on the daily chart will probably need at least a micro double bottom. That means the selling will probably have to stop for a few days before the bulls can create a strong rally.
- If the selling stops, today, which is likely, today will probably be a more neutral day. That means a lot of trading range trading. The bulls will try to get a reversal up and the bears will try to get a resumption of the bear trend.
- The most likely outcome is that today will probably have at least one swing up and one swing down and be a mostly sideways day.
- If today is neutral, it will probably close near the open. If it is 20 to 30 points from the open after 11 am, there will probably be a reversal toward the open at the end of the day.
- The bears want at least a small bear body, which would confirm yesterday’s breakout and increase the chance of lower prices, even of the Emini bounces early next week.
Yesterday’s Emini setups
EURUSD Forex market trading strategies
EURUSD Forex daily chart
- The breakout above the 7-week trading range might be failing.
- This week’s selloff fell back into the middle of the 7-week tight trading range.
- Today so far is forming a micro double bottom with Wednesday’s low.
- The bulls need another higher low and then a break above the January 14 high. If they get that, then the rally will probably last at least a couple months and reach the October 28 lower high.
- The bears want the breakout to fail. They need a break below the January 4 higher low and then a break below the bottom of the 7-week range. If they get that, they will look for a measured move down.
- I have been saying that the EURUSD would probably not continue down to last year’s low without first going sideways to up for a couple months. It went sideways.
- Is that enough of a correction for the selloff to continue straight down? The bears have a 40% chance.
- It is more likely that either the current bull breakout will continue up or that a break below the 7-week tight trading range will reverse up within a few weeks. The odds still favor that the EURUSD would rally for a couple months.
- The nearest target for the bulls is the January 14 lower high and then most recent sell climax high, which is the October 28 high, just below 1.17.
- Since the EURUSD is back its 7-week tight trading range, it might get stuck here for several more weeks.
- However, another bear bar or two will make a break below the range likely.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
End of day summary
- Today sold off on the open to the 200-day MA, but there was a 75% chance of a reversal up after yesterday’s extreme sell climax.
- Today reversed up strongly, but the rally ended with a wedge top at the December low. There was then an endless pullback and a tight range.
- The bears got a breakout below the endless pullback in a Small Pullback Bear Trend, and today closed on its low.
- On the daily chart, this has been a strong selloff from a wedge top. Traders expect at least a couple legs down.
- The selloff is a Bear Surprise Breakout, which typically has a 2nd leg sideways to down and therefore another reason to expect a 2nd bear leg.
- The selloff broke below the December 3 major higher low. The daily chart therefore is now in a trading range and it probably is also in a bear trend.
- The Emini closed below the 200-day MA today for the first time since early in the reversal up from the pandemic crash. Since it is important support, the Emini might rally sharply for a few days next week, especially after 4 big bear days.
- On the weekly chart, this week was a big bear bar that broke far below the bull channel that began on October 30, 2020.
- With the week closing near its low, next week might gap down. If there is a gap and the bears keep it open for a couple weeks, it could become a measuring gap. With this week’s low at about 400 points below the all-time high, a measured move down would be around the 4,000 Big Round Number.
- The bears want at least a small bear bar next week to confirm the breakout. That would increase the chance of lower prices over the following weeks.
- The bulls hope the breakout is just a bear trap. They want a strong bull reversal bar next week.
- But after the wedge top on the daily chart and consecutive OO patterns in a buy climax on the monthly chart, traders should expect the Emini to be sideways to down for a couple months.
- There is often a reversal up after a breakout. Therefore, the Emini might rally strongly for a week or two.
- However, the selloff has been strong and it came from a wedge top on the daily chart. There should be a 2nd leg sideways to down on the daily chart, even if a rally first retraces half of the selloff.
- Traders should expect lower prices over the next month or two.
- On the monthly chart, January is an outside down bar after an outside up December.
- This is an OO pattern, which means Breakout Mode.
- It follows an OO pattern in October. Consecutive attempts at a top in a buy climax have an increased chance of a reversal down.
- January is the sell signal bar for the OO.
- February or March will probably trade below the January low, which would trigger the OO sell signal.
- The minimum target is a measured move based on the height of the OO, which is January’s range.
- That would lead to a test down to the October 3 low and possibly the gap above the March 2020 high on the monthly chart. That is also just below the 4000 Big Round Number.
- If the selloff falls that far, it would be about a 20% correction, which is the likely worst case for 2022, barring surprises. For example, if Russia invades the Ukraine and many countries get involved, the Emini would probably fall much further.
- There is currently a 30% chance that the Emini has begun a trading range for the next decade. The Emini is more likely to transition into the trading range over a couple years, like in 2000.
- If the decade-long trading range has begun, its low will probably be around the Breakout Point of the 2-year rally. That is the March 2000 pre-pandemic high at around 3300, which is about a 30% correction.
- More likely, traders should expect a rally in the 2nd half of the year since the 1st reversal down on the monthly chart should be minor.
- Will there be a V-bottom, like in December 2018? Those are rare and therefore unlikely. The bulls will probably need some kind of double bottom before the trend up will resume.
See the weekly update for a discussion of the price action on the weekly chart and for what to expect going into next week.
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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.