Trading Update: Friday January 7, 2022
Emini pre-open market analysis
Emini daily chart
- Emini at measured move targets with bull doji yesterday at the 50-day EMA. Weak follow-through after Wednesday’s big bear day.
- Yesterday is a High 1 buy signal bar at the 50-day MA. The bulls hope that Wednesday is just a bear trap in a bull trend.
- However, yesterday was a doji bar, which is a weak buy signal, especially after a big bear day. Also, it barely touched the 50-day MA and many traders will not consider that an adequate test. Therefore, there probably will be more sellers than buyers above its high.
- This week is outside down on the weekly chart. The bears want the week to close near its low. At a minimum, they want it to close below last week’s low. That would increase the chance of lower prices next week.
- The bulls would like this week to close above last week’s low. That would increase the chance that last week will be more sideways than down.
- The Emini stalled at every Big Round Number from the pandemic low except one (it quickly broke above 4,000). It is now stalling at 4800. Traders expect a move above, but they have not yet decided how long the pullback will last or how low it will go.
- January so far is a bear bar and a 3rd reversal since October, but it is still early in the month. There is still plenty of time for the Emini to get back to the high.
- On the yearly chart, 2022 broke above the 2021 high. It also broke above the December high on the monthly chart, which is the same as the 2021 high.
- It is common for the Emini to pull back from a breakout above a strong bull bar on a higher time frame chart. However, it will usually break above it again before deciding whether to reverse down very far. If it then reverses a 2nd time, the bears will have a better chance of a bigger correction.
- Wednesday was a big enough Bear Surprise bar for traders to expect at least a small 2nd leg sideways to down. Many bulls will wait for at least a micro double bottom before buying again.
- There is a wedge top with the September 2 and November 22 highs. It is at a measured move from the October 30, 2020 low to the gap above the April 1, 2021 high, and at a measured move from the October 4 low to the September 2 high.
- However, there have been many reversals over the past 2 years and all have been minor.
- It continues to be more likely that Wednesday will fail to lead to a bear trend and that the Emini will make a new high before falling below the December low. However, one or two more big bear days would likely lead to a test of the December low.
- It is important to note that the entire rally from July looks like a bull leg in what will become a trading range. Trading ranges often begin before bull or bear trends end. There were many times when the bears had clusters of big bear bars closing near their lows since July.
- For the Emini to evolve into a trading range, it needs a bear leg. The bear leg will probably begin in the next couple of months.
- The Emini should fall to the December low and possibly the October low by summer.
- However, it will probably form a double bottom with one of those lows instead of continuing down.
- So, yes, it will probably break below the bull trend line from the October 30, 2020 low to the October 4, 2021 low. And it could be sideways for many months. But the bull trend is strong enough for traders to look for a resumption of the bull trend in the 2nd half of the year.
- Over the next several days, traders will decide if the 2-day selloff will be a 50% retracement of the late December rally or if the wedge top will lead to a test of the December low.
- It is currently more likely that this is a pullback from the late December rally than the start of a bear trend, but there will probably be another push down within a few days.
Emini 5-minute chart and what to expect today
- Emini is down 3 points in the overnight Globex session after the Unemployment Report.
- Yesterday was a trading range day after Wednesday’s sell climax. The sell climax was so extreme that traders might want to see more time going sideways before deciding if Wednesday was the start of a swing down on the daily chart or just a test of the 50-day MA. That increases the chance of another sideways day.
- Today is Friday so weekly support and resistance can be important, especially in the final hour. This week is an outside down week and therefore the most important weekly magnet above is last week’s low.
Yesterday’s Emini setups
EURUSD Forex market trading strategies
EURUSD Forex daily chart
- Yesterday was a small bear inside day in the middle of a 7-week tight trading range.
- There is no sign of an impending breakout. Traders are continuing to look for reversals every couple days.
- Since trends in the Forex markets are more likely to begin in January than other months, there is an increased chance of a rally lasting at least a couple months and starting soon. Last year’s bear trend began on January 6 and today is January 7. We’ll see.
- However, since the yearlong bear trend is strong, there is a slightly higher probability of one more brief leg down before a reversal up begins.
- There is only a 30% chance that the bear trend will continue down to below last year’s low without at least a 2-month rally first.
- On the monthly chart, the EURUSD has been in a trading range for 7 years. Since markets have inertia and tend to continue what they have been doing, it is likely that the trading range on the monthly chart will continue indefinitely.
- Picking which move up or down will lead to a successful breakout of the 7-year range is a low probability bet. Reversals are always more likely in trading ranges.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
End of day summary
- Yesterday touched the 50-day MA, but did not noticeably dip below it. Many traders did not consider it to be an adequate test.
- Today clearly fell below it and reversed up. Today is therefore a buy signal bar on the daily chart after a test of the 50-day MA and a 50% pullback from the late December rally.
- But today was a bear bar, and it followed an extremely big bear bar on Wednesday. That increases the chance that the 1st reversal up will be minor and that the Emini might have to go sideways to down for a few more days as traders decide if the selling has ended or if the wedge top reversal will continue down to the December low.
- It is currently more likely that there will be a new high before there is a test below the December low. But the selloff might have a little more to go before the bull trend resumes.
- If the bears continue to get big bear bars on the daily chart, the odds will favor a test of the December low.
- Even if there is a new high in January, traders should expect a test of the December low and possibly the October low within a few months.
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.