Trading Update: Thursday February 2, 2023
Emini pre-open market analysis
Emini daily chart
- Emini strong bull breakout after FOMC report.
- The rally ended up being a buy vacuum test of the December 13th high, and the bulls successfully reached it before yesterday’s close.
- As expected, there was some profit-taking at the December 13th high. However, yesterday was a big enough surprise to have a small second leg up likely.
- The daily chart has had eight bull closes out of ten days which is climactic behavior. This increases the odds of getting a couple of legs sideways to down soon.
- While the bears did a good job closing yesterday’s breakout bar below the December 13th high, the bulls were able to go 20 points above the December 13th high. That is enough to make traders think the breakout will likely get retested and lead to a second leg up.
- The second leg up may not go far above yesterday’s high before it pulls back. However, since the odds favor a second leg up, most bears will not sell the close of yesterday’s bar and will instead wait for at least a micro double bottom.
- The bears can argue that yesterday was a third leg in a wedge top (January 23rd, January 27th). Therefore, they want today to be a bear bar closing on or near its low. This would increase the odds of yesterday’s failed breakout on December 23rd (Double Top) and wedge top with the second leg.
- The bulls want the opposite. They want a strong follow-through bar today, increasing the odds of higher prices and a rally up to the August high.
- Today is an important bar for both the bulls and the bears, and traders will pay close attention to today’s close.
- While the market is beginning to form negative gaps (a sign of trending behavior), the market is likely in a trading range. Therefore, the bulls will probably be disappointed soon.
Emini 5-minute chart and what to expect today
- Emini is up 35 points in the overnight Globex session.
- The Globex market has been in a trading range since yesterday’s close.
- The bulls are trying to get the start of a second leg up beginning at 4:30 AM PT.
- The bears are hopeful that the market has gone sideways long enough that the overnight trading range will become a final flag after an upside breakout of the range.
- Yesterday’s rally was extreme, and the market may still have to go sideways for a couple of hours to relieve the buying pressure.
- In general, there is a 50% chance of continued follow-through on the open. However, traders should expect a 75% chance of sideways trading beginning before the end of the second hour.
- The selloff in the final few bars of the day is good for the bears and will help relieve some of the buying pressure. However, the odds still favor a trading range on the open, possibly lasting all day.
- As always, traders should expect a trading range open and consider not trading the first 6-12 bars unless they are comfortable with limit orders and making quick decisions.
- Most traders should look for a swing trade on the open which generally has an 80% probability of happening before the end of the second hour.
- The swing trade usually happens after the formation of a double top/bottom or a wedge top/bottom; therefore, traders should be on the lookout for one of the abovementioned patterns.
- With today likely having a lot of trading range price action all day, traders should pay close attention to the open of the day, especially if it is in the middle of the day’s range.
Emini intraday market update
- The Emini gapped up and sold off to the 7:15 AM PT (Bar 9) low; however, it was a leg in what was likely a trading range.
- The selloff down to bar 9 was not strong enough to reverse the strength of the gap up, which made the odds favor a 2nd leg up after the opening gap.
- The bulls got a strong breakout at 7:20 AM PT which made the market Always In Long and increased the odds of a second leg up and test of the high of bar 1.
- The bulls got another strong breakout at the 7:35 AM PT (Bar 13) high. Bar 13 was a strong enough breakout to lead to a couple of legs up.
- The rally up to the 8:00 AM PT (bar 18) high is a strong enough breakout to limit the downside potential. This means the best the bears can expect for several hours is a bear in a trading range.
- If the bears can begin to develop more selling pressure, it will increase the odds of them getting a selloff down to bar 1 high, where the bears got trapped.
- The low of the day is likely in for the rest of the day.
- The market will probably go sideways for the next several hours and decide on trend resumption or trend reversal.
- I am writing this at 8:43 AM PT (Bar 27), and the market has not exceeded the bar 18 range. The odds favor a breakout above or below the bar 18 range, and since the low of the day is so far away, this means the odds favor the market going above bar 18 today. Therefore, any selloff will likely be brief until the market gets above the bar 18 high.
Yesterday’s Emini setups
Al created the SP500 Emini charts.
EURUSD Forex market trading strategies
EURUSD Forex daily chart
- Yesterday was a strong bull close for the bulls. However, it is climactic and likely to lead to exhaustion and sideways trading than much more up.
- The market reached 1.1000, a big round number and a magnet for the market.
- Yesterday is the best-looking bull breakout bar in several bars which will likely entice bulls to take profits and increase the odds of sideways trading.
- While the bulls want the small pullback bull trend to continue for some time, the odds favor a transition into a trading range and a couple of closes below the moving average (blue line)
- Overall, the market will probably try and test down close to the low of the year and form a trading range over the next couple of months before it rallies another 200 pips.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
Al created the SP500 Emini charts.
End of day review
- I will update at the end of the day.
See the weekly update for a discussion of the price action on the weekly chart and for what to expect going into next week.
Charts use Pacific Time
When times are mentioned, 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.