Trading Update: Thursday February 3, 2022
Emini pre-open market analysis
Emini daily chart
- Last week, the Emini had a strong reversal from below the October low, which is the bottom of the 6-month trading range. But Emini bulls disappointment still likely.
- As Al has been saying, this rally is currently a V-bottom. V-bottoms happened on the October – December 2018 crash and the pandemic crash. Traders are wondering if this rally will continue to a new high without needing more than a 3-day pullback.
- So far, this V-bottom is likely to go higher even if there is a 3-day pullback.
- On Monday, the bulls tested the December breakout point and continued above it for two consecutive days, furthering the chances of more up.
- Traders are currently deciding, will this rally be a V-bottom that reaches the January all-time high, or will the market get a second leg down from the selloff in January.
- The odds are slightly higher that we will continue up at least a little after the four consecutive bull days, however as Al has stated in yesterday’s blog, the bulls have two problems with this rally. One is that the Emini has been in a trading range for the past 6 months, which means the bull will likely become disappointed by the rally soon. Next is that the January selloff is unusually strong, which makes a second leg down likely. Even if the second leg down is small and tests the January lows, that would satisfy the requirement.
- If the bulls continue to get more bull closes on the daily chart, this will increase the odds of the V-bottom being successful and lower the probability of a second leg down.
- Since last Friday, it is important to notice that the bull bodies have been getting smaller, which is a sign of momentum loss by the bulls. This increases the odds of 2-3 days sideways to down.
- Traders will pay close attention over the next couple of days to see what kind of pullback the rally from the January lows will have. If it only has a 2-3 day pullback and reverses up, the odds are the market will go at least a little higher. However, if the bears can keep the market sideways around this current price level, the odds will increase that they will get their second leg down.
Emini 5-minute chart and what to expect today
- Emini is down 36 points in the overnight Globex session.
- The Emini has been sideways to down since yesterday’s close.
- The odds are today will close around the open. This is due to the bulls having four consecutive bull days in a trading range, and the bull bodies are getting smaller, which is a sign of momentum decreasing.
- Traders should expect a trading range open and pay close attention to the open of the day since today’s odds will close below the open or at the very least close around the opening price.
Yesterday’s Emini setups
Al created the SP500 Emini charts.
EURUSD Forex market trading strategies
EURUSD Forex daily chart
- The EURUSD had a strong reversal up on Monday following the bear breakout below the 2-month trading range.
- The bulls were able to get follow-through on Tuesday, which increased the chances of at least a small 2nd leg up.
- Yesterday’s close was right at a 50% retracement of the January selloff. This week, bulls are hopeful that the 3 consecutive bull bars are strong enough to test the January 20 lower high and ultimately break above the January high and form a bull trend over the next couple of months.
- The bulls need to break above the January 20 lower high (the most recent sell climax). Ultimately, the bulls need to break above the January 14 major lower high for traders to conclude the market is no longer in a bear trend.
- The bears are still hopeful that the rally this week is just a lower high 50% pullback of the January selloff and that the January selloff is the resumption of the bear trend.
- Over the past three days, the reversal up is strong enough for most traders to conclude that the market is more likely in a trading range than a continued bear trend.
- The bulls still need to get more strong bull bars before traders are convinced this will be the start of a bull breakout above the January 14 major lower high.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
End of day summary
- The Emini opened with a big gap down and formed a bear channel day.
- On the open, it had a weak rally that reversed down from a wedge at the EMA.
- There was a wedge bottom in the middle of the day, but the reversal again failed at the EMA.
- The third, bigger wedge bottom in the final hour also failed to stop the selling.
- However, there was a sharp reversal up in the final minutes, and today closed just below the open.
- Today is a High 1 Buy signal bar on the daily chart, but its bear body makes it less reliable.
- A more important factor is tomorrow’s unemployment report, which will be released before the day session opens. It increases the chance of at least one strong move up or down tomorrow.
- The bulls want the V-bottom on the daily chart to continue up.
- But even if tomorrow sells off, there will still probably be a 2nd leg up next week after this week’s strong rally.
- Tomorrow is Friday and therefore weekly support and resistance can be important, especially in the final hour.
- The bulls want a bull bar on the weekly chart, especially one that closes near its high.
- The bears want a bear bar closing near its low so that this week will be a Low 1 sell signal bar for next week.
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.
Hi Al –
We have been getting a lot of gaps on the daily chart between the close and open of bars (1/31-2/1, 2/1-2/2, 2/2-2/3).
Is this a sign of TR PA or a sign of strength. Can we base any strategy on the presence of those gaps?
The gaps during the rally are a sign of bullish strength, but the problem the bulls face is the market is around the middle of the 6-month trading range on the daily chart.
The bears are trying to close as many open gaps as possible. One important gap is the breakout point at January 26th high. If the bulls are strong, they need to prove it by keeping this breakout gap (January 26th) open.
Gaps are important, but one must view them within the given context, which is a trading range here. This makes everything confusing, along with the confusion is the probabilities are not as high as they look.
Almost looks like the Emini bots did the same thing as yesterday… except in reverse.