Trading Update: Thursday February 10, 2022
Emini pre-open market analysis
Emini daily chart
- The daily chart had a gap up yesterday following a micro double bottom. This is strong enough context that the market should move up for a day or two.
- The bulls want resumption of the V-bottom reversal up and are hopeful it will lead to a new all-time high.
- The bears are hopeful the three-week rally is a pullback from the January selloff. The bears want this rally to ultimately form a lower high and test back down to the January lows.
- As strong as the bulls were yesterday, it is important to remember that the Emini is still in a large trading range on the daily chart. Trading ranges frequently disappoint traders, and one thing disappointing for the bulls would be a weak follow-through bar after yesterday’s rally.
- In a trading range, the probability for both sides is never as high as you want and always closer to neutral.
- If the bulls can get consecutive big bull bars, the odds of testing the all-time high will go up, and the Emini will likely have to reach it.
- If the bears get strong consecutive bear bars, the odds will increase that the market has to reach the January lows.
- Traders need more information (price action) before being confident of a test of the January low or a test of the all-time high.
- If we do get strong consecutive bear bars, it will increase the odds of the market testing the January low and 4,000 (big round number). 4,000 is also a magnet because it is close to the May 2021 lows.
- As strong as this rally appears, the odds of testing the January lows are slightly higher than the market reaching the all-time high before the test down.
- As Al mentioned yesterday, the monthly chart has consecutive outside bars (OO Pattern).
- OO patterns usually have a higher probability of success which means that the odds favor a test of the January low before reaching the January high.
- If the bulls get consecutive strong bull closes, breaking far above the February 2 high, the odds will increase for the bull rally to the all-time high.
- It is important to remember the market is still in a bull trend on the higher time frames, so even if we reach the January low, the odds are the price will not fall far below it before reversing up. As Al said yesterday, there is only a 40% chance the market will reach the 4,000 round number.
Emini 5-minute chart and what to expect today
- Emini is down 60+ points in the overnight Globex session.
- The bears got a strong breakout during the 5:30 report during the Globex session.
- As I stated above, the daily chart is in a trading range, so the odds are the bulls will be disappointed over the next few days.
- Today will be a gap down. Bulls will want a trend from the open, bears will want a bear trend day, and will look to sell any pullback to the moving average.
- Today will likely open as a trading range day, and traders will either wait for a clear breakout with follow-through or a credible stop entry before taking any swing trades.
Yesterday’s Emini setups
Al created the SP500 Emini charts.
EURUSD Forex market trading strategies
EURUSD Forex daily chart
- The EURUSD had a strong breakout last week following a failed breakout of the 2-month trading range. The 2-month trading range ended up being a final flag reversal.
- The bears have had a selloff on the daily chart since May 2021. Last week’s breakout is likely the start of a two-month rally. On the higher time frames, this selloff looks like a bear leg in what will become a trading range, which means the bulls should get at least a rally for a couple of months on the daily chart.
- Last week broke slightly above the January 14th high.
- The bulls want a breakout and measured move up (1.18) of the two-month trading range. (See measured move projection on the chart).
- The bears see last week’s rally as a double top with the January highs and want a measured move down.
- Right now, the odds are that the bulls will get their bull breakout; however, the market is still in a trading range. This means that the market might get a deeper pullback to around 50% of last week’s bull rally. At the moment maybe a 40% chance we get the deep pullback.
- Even if the market has a 50% pullback of last week’s rally, the odds are bulls will get their breakout and measured move up.
- Al mentioned yesterday that the EURUSD chart is likely telling us that if Russia invades, Europe will probably handle it well. I bring this up because it is a good reminder that most news is already baked into the chart. However, as Al said, if Europe does not handle the potential conflict well, it could result in a pain trade and lead to a sharp move back down to the January lows.
- Update: As I am writing, the bears got a sharp reversal down to the lows of the past several days. The bears are trying for a bear breakout and measured move down and ultimately want to reverse the strong breakout of last week. The odds still favor the bulls getting their second leg up and that this bear breakout on the intraday chart is likely just a sell vacuum testing the bottom of the range from the past couple of days.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
Al created the SP500 Emini charts.
End of day summary
- Today was a trend from the open that formed a buy climax (parabolic wedge) that led to a bear breakout.
- The opening rally tested yesterday’s close and went sideways for 20 bars forming a wedge lower high major trend reversal.
- The bears got a surprise bear breakout on bar 40 that started a bear trend into the close.
- Bar 46 formed a measuring gap from a measured move of the high of the day projecting down.
- Today is a good reminder that strong trends constantly form wedge bottoms that fail.
- To cool off the consecutive sell climaxes today, traders should expect a trading range on the open for a few hours.
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.