Emini Higher Low Major Trend Reversal but in 7-month trading range

Trading Update: Wednesday February 9, 2022

Emini pre-open market analysis

Emini daily chart

• Yesterday was an outside up day, and it closed just above Monday’s high, which is a sign of strength. It was also the 4^th day in the pullback from the strong rally to the February 2 high.
• There is now a micro double bottom, and yesterday is a buy signal bar. The Emini should trade up for at least a couple days.
• The bulls hope the 4-day pullback is a bull flag. Since last week’s rally was a Bull Surprise, this week should test last week’s high.
• They want a resumption of the V-bottom reversal up, and they want it to lead to a new all-time high.
• The bears know that the Emini should trade up for at least a couple days. However, they are hoping that the 3-week rally is just a pullback from the January collapse. They want a lower high and a test of the January low.
• The Emini is still in the middle of a 7-month trading range. It is therefore fairly neutral, despite the big selloff in January and the strong rally in February.
• Traders need more information before being confident of a 2^nd leg down or a continuation of the V-bottom rally.
• More information means more bars. If there is a series of strong bull bars, the Emini should make a new high soon.
• If there is a series of bear bars, it should continue down to around 4,000.
• On the monthly chart, there are now back-to-back OO patterns (consecutive outside bars).
• This is coming late in the strong bull trend on the monthly chart. A 2^nd attempt to reverse has a higher probability of success.
• It is therefore still more likely that the rally from the January low will form a lower high on the daily chart, and it will lead to a test of the January low before making a new high.
• In fact, because of the 2^nd reversal attempt on the monthly chart, traders want to know what will happen if the OO sell signal triggers. Will there be more buyers or sellers below the January low?
• The bulls hope the bear breakout below the January low will fail. Traders should understand that the selloff has a 50% chance of falling below the January low, a 40% chance of dipping below the 4,000 big round number, but only a 30% chance of reaching the pre-pandemic high.
• They also should know that a bear trend on the monthly chart is rare. Therefore, the selloff should end in March or April.
• February so far is a small inside bar on the monthly chart and it is in the middle of January’s huge range. I have said several times that February might remain in inside bar and it might even have a bull body.
• However, it is still slightly more likely that the Emini will break below the January low before going above the January high. I also said that the breakout might wait until March.
• When a selloff ends, either the bull trend resumes or the market enters a trading range.
• Since the bull trend on the monthly chart is strong, there should be at least one more new high before the bears will have a reasonable chance of a bear trend on that chart.
• Therefore, the bull trend should resume within a couple months, or after a trading range.
• The bulls are hoping that the current rally is the resumption of the bull trend. If it is, there should be a new high within a month.
• If the monthly chart enters a trading range, it could last as long as a year before there will be a new high, but a new high is likely before the bears can get much more than a 20% correction.

Emini 5-minute chart and what to expect today

• Emini is 41 points in the overnight Globex session. Today should open with a big gap up. As I wrote above, the Emini should try to test last week’s high. Today is the start of that test. If today sells off, there will be a micro double top.
• Whenever there is a big gap up, there is an increased chance of a trend day. If there is a trend, up is slightly more likely than down.
• If there is a series of strong trend bars in either direction early in the day, the odds of a trend go up.
• When there is a big gap up, the Emini is far above the average price (the EMA). Bulls only want to buy if the bars are very bullish.
• Most of the time, a big gap up leads to a trading range open. The Emini goes sideways to down to near the EMA. At that point, the bulls look for a double bottom or wedge bottom, and then a trend up.
• The bears know that the Emini typically gets near the EMA within the 1st hour or two. They look for a double top or a wedge top and then a swing down to the EMA.
• Since a trading range open is likely, there tends to be some neutrality. That reduces the chance of a strong trend.
• If there is a trend, it will probably be a weaker trend, like a trending trading range day or a broad channel.
• If there is a strong trend up, there is an increased chance of exhaustion. The market tends to enter a trading range after a couple hours.

Yesterday’s Emini setups

Here are several reasonable stop entry setups from yesterday. I show each buy entry with a green rectangle and each sell entry with a red rectangle. Buyers of both the Brooks Trading Course and Encyclopedia of Chart Patterns have access to a much more detailed explanation of the swing trades for each day (see Online Course/BTC Daily Setups).

My goal with these charts is to present an Always In perspective. If a trader was trying to be Always In or nearly Always In a position all day, and he was not currently in the market, these entries would be logical times for him to enter. These therefore are swing entries.

It is important to understand that most swing setups do not lead to swing trades. As soon as traders are disappointed, many exit. Those who exit prefer to get out with a small profit (scalp), but often have to exit with a small loss.

If the risk is too big for your account, you should wait for trades with less risk or trade an alternative market like the Micro Emini.

EURUSD Forex market trading strategies

EURUSD Forex daily chart

• Last week rallied strongly from a failed breakout below a 9-week tight trading range. I have been saying for a couple months that the trading range would be a Final Bear Flag and that a bear breakout would fail.
• I have also been saying that the EURUSD should rally for at least a couple months. This is because the yearlong bear trend is still in an 8-year trading range. It is therefore more likely a leg in the range than a resumption of the 15-year bear trend.
• A bear leg in a trading range usually leads to a bull leg. Since the bear leg has lasted a long time and reached support at the June 26, 2020 higher low, last week’s rally will probably be the start of a leg up. A leg up should last at least a couple months.
• The rally stalled at the January 14 high. It could go sideways to down for a few weeks as traders decide between a reversal down from a double top and a break above the January 14 high.
• The bears want a reversal down from a double top and then a measured move down below the January low.
• Today so far is a bull bar closing near its high. The bulls are trying again to break above the January 14 high. They should be successful within the next few days, but there is a 40% chance that the pullback will correct 50% of last week’s rally before the bulls get their breakout.
• The bulls want a breakout above the double top and a measured move up to above 1.18. That is also around the October 28 high, which was the start of the strong leg down. This is more likely than a breakout below the January low.
• But, what if Russia invades the Ukraine AND Europe messes up the response? The EURUSD will quickly go down to the bottom of the 8-year range.
• At the moment, the chart is saying that if Russia invades, Europe will handle it well, and the crisis won’t be disastrous for the EURUSD.

Summary of today’s S&P Emini futures price action and what to expect tomorrow

End of day summary

• The Emini had a big gap up, and then went sideways, as it usually does after a big gap.
• The bulls had a weak rally for a couple hours to just below last week’s high. Remember, I said that last week’s rally was strong enough to expect a test of its high.
• After consecutive wedges at a new high of the day, the Emini reversed down sharply, back into the earlier trading range (today, a triangle).
• It then reversed up sharply to a new high and then sharply again. The Emini today was in a Broad Bull Channel.
• Big legs and sharp reversals indicate uncertainty and usually results in a trading range. Traders are probably nervous ahead of tomorrow’s inflation report.

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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Trading Room

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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.

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