Emini pausing after sell climax to below October low

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 2^nd 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

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

• 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.

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Trading Room

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.

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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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