Trading Update: Monday January 31, 2022
Emini pre-open market analysis
Emini daily chart
- The bulls had a low 1 short trigger on Friday; however, Friday closed on its high, setting up a reasonable second entry buy setup on the daily chart following last week’s selloff.
- The bulls are hopeful that Monday will gap up, triggering the second entry buy, and the market will begin to rally back to the all-time high.
- More likely, the market is evolving into a tight trading range, and both the bulls and the bears will be disappointed in the upcoming days.
- The bulls have a strong buy signal bar with Friday’s close; however, it is in a 4 bar tight trading range which lowers the probability of the bulls
- Since Friday’s buy signal bar is big, bulls may look to buy a 50% pullback of the bar, just like bulls did on the January 24th buy signal bar.
- While Friday’s signal bar is not great for the bulls, there are still several magnets above that the market will likely have to reach in the next week or two. Two obvious magnets are the December lows and the 4600 round number. Bulls bought the December lows, confident those traders could scale in lower and look to take profits back at the December lows.
- The bear selloff to the October lows is strong enough for a second leg down, so the odds are the first reversal up will be minor, leading to a bear flag or a trading range.
- As strong as the selloff was in January, traders still see the market as either a bull trend or a trading range, not a bear trend. For traders to conclude a bear trend is underway, the price has to begin forming lower highs and lower lows. This means that the bears will look to sell some major trend reversal setup in the form of a lower high.
- Since a trading range is likely, it is important to remember that the pullback might retrace 66% of the January rally. This would give the bears a great risk-reward.
- The bulls are hopeful that this past Friday is the start of a bull breakout above a bear flag, or that the pullback from the January 25th selloff will lead to an endless pullback and form a small pullback bull trend.
- Currently, the odds are that the market will test of to the December lows, and the bears will look to sell a rally for a second leg sideways to down.
- The most important thing to remember is that the market is forming a tight trading range between the December and October 2021 lows, so traders should begin to expect more confusion and disappointment.
Emini 5-minute chart and what to expect today
- Emini is down 3 points in the overnight Globex session.
- The bulls want the market to gap up on the open, triggering the second entry buy on the daily chart.
- If the market does not gap up on the open, the market will probably have to go above Friday’s high today at a minimum to see if there will be more buyers or sellers above.
- Today will be important to see how to market will react to Friday’s high. If the bulls can get a strong rally and close above Friday’s high, that will increase the market’s odds to go higher.
- Today will probably be disappointing for the bulls, which would further traders’ expectation of a trading range on the daily chart.
- Today’s two very important price levels will be the open of the day and last Friday’s high (4426).
Friday’s Emini setups
Al created the SP500 Emini charts.
EURUSD Forex market trading strategies
EURUSD Forex daily chart
- The bears broke below the two-month tight trading range last week. The bear breakout is a surprise and strong enough for at least a second leg sideways to down.
- The bears failed to get follow-though last Friday, and instead, the following thought was a doji. This is a sign of weakness and increases the odds more sideways than down.
- Targets for the bears is the 200-pip measured move down and the bottom of the bear channel from last year (about 100 pips lower).
- The channel down from January 14th is tight, so the first reversal up is likely to be minor.
- The bears see the two months sideways to up trading from December to January 2022 as enough to relieve any prior exhaustion from the selloff in November 2021.
- Traders will likely see the two months of sideways trading as a final bear flag.
- The bulls will need to create enough buying pressure, such as a double bottom or strong consecutive bull bars, to convince traders that the market is going higher.
- At this moment, the odds are 40% or less that the market will continue down to the 2020 lows.
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 bull trend from the open and was a strong entry bar for the bulls following last Friday’s second entry buy.
- By 7:10, traders had to be open to the possibility of a spike and channel bull trend day, and the market was always in long.
- At 8:05, the bears tried for a lower high major trend reversal but failed and bulls bought a two-legged pullback to the moving average, expecting more up.
- By 11:30, the odds were high the market would get at least one close below the moving average. This means most bulls would look to sell out of their longs and buy lower after the market adequately tested the moving average and price closed below it.
- As strong as the two-bar bear breakout at 12:15 was, it was a test of the start of the bull channel at 9:30.
- The bulls saw 12:15 as a bear trap and bought aggressively trapping the bears into buying back shorts into the close of the day.
- The market is at important magnets, December Low, 4500 round number, and the midpoint of the January selloff on the daily chart.
- The odds are high that the market will go higher over the next couple of days. However, the market is in a trading range, which increases the odds of the bulls becoming disappointed soon.
- Traders should expect trading range price action on the open tomorrow and for the bulls to become disappointed after the past two strong bull days.
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.
Thanks for the report Brad. The close of the monthly bar @ the midpoint is a sort of confirmation price is in a TR?
You are correct in what you are saying. The past 6 months are all in a tight trading range. The monthly chart is in a tight bull channel so traders are going to buy bear bars, especially ones that are closing on their lows.
You are right though, January closing at the midpoint of the bar can be viewed as confirmation of trading range price action.
Thank you, Brad!