Trading Update: Wednesday January 26, 2022
Emini pre-open market analysis
Emini daily chart
- Monday was a big bull bar closing near its high. It was a buy signal bar for a break below the October low, which was the bottom of the 6-month trading range.
- The bulls also want a reversal up from the 200-day MA.
- Finally, there are 2 legs down from the high, and a Spike and Parabolic Wedge Sell Climax. Emini pausing after sell climax.
- Yesterday was a doji inside day. It is a High 2 buy signal bar for the bulls and a Low 1 sell signal bar for the bears. But a doji bar is a low probability signal bar, which reduces the probability of a big move today above it or below it.
- If today or tomorrow goes above yesterday’s high and especially above Monday’s high, the Emini will trigger the buy signal.
- For the bears, yesterday is a Low 1 sell signal bar in a strong bear trend. But after Monday’s big reversal up at the bottom of a trading range, there probably will be buyers either below yesterday’s low or below Monday’s low. The chance of a continued collapse this week is small.
- Traders should expect the Emini to start to go sideways to up soon for at least a week or two.
- The January wedge top will probably get at least a small 2nd leg down. Therefore traders will look to sell again after a bounce of at least several days.
- The bounce will probably go back above the December low since that was a major breakout point. It might retrace 50% of January’s selloff.
- The bears hope Monday was a bull trap and that the collapse resumes today. A reversal up from a sell climax is likely before the Emini falls much below Monday’s low.
- The open of the week could be a magnet all week. The bears want a follow-through bear bar, especially one closing near its low. That would increase the chance of lower prices next week.
- The bulls want the week to close on its high. That would increase the chance of a bounce for 1 to 3 weeks.
- At a minimum, they want the week to close above the open. That will reduce the chance of lower prices next week.
Emini 5-minute chart and what to expect today
- Emini is up 66 points in the overnight Globex session.
- It might gap above yesterday’s high. If the gap is small, it will probably close in the 1st hour.
- The Emini has been in a trading range for 6 months. Breakouts typically have pullbacks that go beyond breakout points. The December 20 low was a major breakout point. There is a 60% chance that there will be a rally to above that low within a week.
- With the 2-day micro bottom and consecutive bull bars, there is an increased chance of a reversal up that could last a couple weeks. That increases the chance of a bull trend day.
- However, after a sell climax, the market often goes sideways for 5 to 10 bars before deciding on its next direction. That increases the chance of a reversal back down early today.
- If there is a series of strong trend bars in either direction, there will be an increased chance of a trend.
- If most of the early bars have prominent tails and there are a lot of reversals, the odds will favor a trading range day.
Yesterday’s Emini setups
EURUSD Forex market trading strategies
EURUSD Forex daily chart
- Drifting down in a tight bear channel since the January 14 failed breakout above the 2-month trading range. Also, still in bear channel that started a year ago.
- Near bottom of the 2-month range. Lots of overlap among the past 5 days, but the bars are forming lower highs and lows so bearish.
- While slightly more bearish than bullish because of the trend down for 2 weeks, it is barely better than 50-50 for the bears because it is still in the 2-month tight trading range.
- Until there is a breakout, there is no breakout.
- Bears hope that Jan 14 high was simply a test of the Nov 15 low, and that it formed another lower high in the yearlong bear channel.
- They want a measured move down from the Sept 3 high to the Nov 15 low.
- That would be a test of the June 19, 2020 low at the start of the 2020 bull channel.
- The bears want a breakout below that low and then a breakout below the 7-year trading range.
- The bulls hope that the 2-month trading range will be the Final Bear Flag. The odds are that it will be, which means they expect a breakout below will fail within a few weeks. It would be unusual for the yearlong bear trend to reverse all of the 2020 strong rally without at least a bounce of a couple months.
- However, the early January rally is failing. The odds slightly favor a breakout below the 2-month trading range. But, there will probably be a reversal back up within a few weeks of the breakout.
- A tight trading range is a bad environment for traders looking for a trend. Traders are looking for reversals every few days, waiting for a strong breakout in either direction, or for a failed breakout.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
End of day summary
- Today opened with a small gap up, which closed in the first few minutes.
- It reversed down from a wedge top and then up from a wedge bottom.
- It was in a tight trading range until the FOMC announcement.
- It broke to a new high and reversed down from a micro double top, higher high major trend reversal, bull trap, and Final Flag Top.
- Today is a bear bar on the daily chart and a Low 1 sell signal bar in a bear trend. But it has a big tail below and there are 3 mostly overlapping days, so this is a weak sell setup.
- Tomorrow will probably trade below its low and trigger the sell signal.
- However, the January sell climax was extreme and the Emini reversed up sharply on Monday.
- The odds are that it will trade sideways to up for at least a couple weeks. It should get above the December low.
- If there is a new leg down, it will probably be brief. The Emini should not fall much further before the bears take profits and the bargain hunters buy.
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.