Trading Update: Friday February 4, 2022
Emini pre-open market analysis
Emini daily chart
- I have been saying that there should be a pullback for 1 to 3 days since the rally has reached a sell zone. Emini V-bottom rally stalling.
- That zone is the middle of the 6-month trading range at around a 50% retracement of the January selloff.
- Also, it is testing the January 10 low, which is the highest of the 3 breakout points in the selloff.
- I also have been saying that a bottom after a 2nd leg sideways to down is more likely than a V-bottom since a V-bottom is uncommon.
- If there is going to be a V-bottom, the bulls need to prevent this selloff from falling much further and from lasting more than a few days.
- Yesterday is a High 1 bull flag buy signal bar after a strong rally, but it had a bear body. However, today’s unemployment report is more important and there is an increased chance of an early trend today.
- If the Emini falls back below the top of last week’s tight trading range and then rallies strongly, it could still lead to a bull trend, but the bottom would be a higher low major trend reversal and not a V-bottom.
- Today is Friday and therefore weekly support and resistance can be important, especially in the final hour. The bulls want the week to be a big bull bar closing on its high. It would then be a strong entry bar after last week’s double bottom reversal. That would make higher prices likely next week.
- At a minimum, the bulls want a bull body, preferably closing above its midpoint and above the December low. Traders would then look for sideways to up trading next week.
- If this week is a bear bar closing on its low, it would be a Low 1 sell signal bar on the weekly chart for next week. Traders would expect lower prices.
- There are back-to-back OO patterns on the monthly chart (consecutive outside bars). That is a 2nd attempt to reverse down late in a bull trend, which has a higher probability. January was a bear bar that closed below its midpoint, which further increases the chance of lower prices over the next couple months.
- The Emini should fall below the January low in February or March, which would trigger the monthly OO sell signal.
- But because the monthly bull trend has been strong, the reversal down should only last 2 to 3 months.
- The odds favor a new high before a bear trend reversal on the monthly chart.
- However, a 3-month selloff might lead to a trading range, which could last a year or more. But even if it lasts a long time, traders should expect at least one more new high before there is more than about a 20% selloff.
- There is a 50% chance that the current reversal down will continue to below 4,000 within a few months.
- There is only a 30% chance that it will test the pre-pandemic high, which is the February 2020 high, just above 3,300. That is the most important breakout point of the 2-year rally.
- Last week, I created a video in which I discuss what the next few years might be like.
Emini 5-minute chart and what to expect today
- Emini is down 20 points in the overnight Globex session just after the unemployment report.
- The bulls are hoping this is just a test of yesterday’s low and that today will reverse up from a double bottom.
- The bears hope today will be a bear trend that again breaks below the October low and continues down to the pre-pandemic high over the next few weeks.
- What will happen? Traders need more information, which means more bars.
- If there is a series of strong trend bars up or down on the open, today will probably be a trend day.
- However, Big Down in January and Big Up in February creates Big Confusion. It makes traders less willing to press bets in either direction and it increases the chance of the market going sideways for two or three days. When a market is sideways, it typically has swings in both directions, which means a lot of trading range trading.
Yesterday’s Emini setups
EURUSD Forex market trading strategies
EURUSD Forex daily chart
- Yesterday was another big bull day and it closed above the top of the yearlong bear channel.
- I have been saying for a couple months that a breakout below the November/December trading range would fail. This is because a tight trading range late in a bear trend is typically the Final Bear Flag.
- Additionally, I have been saying that the rally should last at least a couple months.
- Targets above are the January 14 lower high, and then breakout points on the day day. These include the October 12 low, the November 4, 2020 low, and the March 2021 low.
- Another target is a 50% retracement of the 2021 bear trend.
- Will this rally reach all of the targets? Maybe 50-50 right now.
- But if next week is a bull bar on the weekly chart closing on its high, there would be a 60% chance of a breakout above the November 2020 low. That was the bottom of a yearlong trading range within the 7-year trading range. When a market reverses in a trading range, it usually goes beyond breakout points.
- Can the bears create a double top bear flag with the January 14 high? Today’s high so far is a fraction of a pip above that high, and today currently is near the low of the day.
- They will try, but the rally has been strong enough so traders will buy the 1st reversal down. Therefore, the bears will need at least a reversal down from a micro double top next week before they would have a 50% chance of a reversal down to below the January low.
- What if Russia invades the Ukraine? It would hurt Europe and probably the EURUSD, but it would also hurt the US and possibly the dollar. It is too early to tell what the EURUSD will do.
- There is only a small chance of Putin invading while the Winter Olympics are going on. Putin cannot risk alienating Xi.
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 sold off from a wedge at the EMA, but reversed up from a wedge at just below the January 26 high.
- The rally continued in a Small Pullback Bull Trend to above the 60-minute EMA and yesterday’s close.
- The Emini reversed down into the close from a measured move target that was just below yesterday’s high, forming an Almost Outside Up Day.
- Today is a High Buy signal bar on the daily chart, but because of the small bull body, it is a lower probability buy. That increases the chance of another sideways day on Monday.
- While this week had a bull body on the weekly chart, the week closed just below its midpoint. That reduces the chance of a strong rally next week.
- The 2-day pullback might last another day or so, but the odds favor at least a small 2nd leg up next week after the strong rally from below the bottom of the 6-month trading range.
- Traders are deciding if the rally is a pullback from the January collapse or a resumption of the 2-year bull trend. So far, this is a continuation of the 6-month trading range.
- The market has already priced in Russia invading the Ukraine.
- What we don’t know is whether in fact Putin will invade, and if he invades, how Europe will respond.
- The current price of the market is due to current information. If there is a surprise either way, there will likely be a strong breakout in either direction.
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.
Hello Dr. Brooks,
Once bulls took over after wedge bottom, there were lot of dojis reflecting lack of conviction on part of Bulls, but still edged higher in small pullback trend. Wasn’t Traders expecting more TR and reversals and low probability of a bull breakout in the middle of session at that point?
The bears wanted a wedge really to a double top, but that Small Pullback Bull Trend was a warning that there might be a breakout instead of a top. Also, yesterday’s high was a measured move up. While that breakout could have been an exhaustion bar, traders had to wonder if it was going to be a measuring gap. It was a relatively low probability event, but low probability events often go a long way because lots of traders were thinking of the opposite.
Appreciate your valuable insights Dr. Brooks. Thanks you!