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Weekly Emini Embedded Wedge

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Market Overview: S&P 500 Emini Futures

The market formed a weekly Emini embedded wedge in the third leg up (May 23, Jun 28, and Jul 12). The bulls hope that the rally will lead to months of sideways to up trading (broad bull channel). The bears want a reversal from a higher high major trend reversal, a wedge pattern (Jul 27, Mar 21 and Jul 12) and a trend channel line overshoot.

S&P500 Emini futures

The Weekly S&P 500 Emini chart

Emini Weekly: Wedge, Embedded Wedge, Climactic Rally, Weekly Emini Embedded Wedge
  • This week’s Emini candlestick was a bull bar closing around the middle of its range with a long tail above.
  • Last week, we said that odds slightly favor the market to still be in the sideways to up phase and there are no signs of strong bears yet.
  • The market traded higher into new all-time high territory but closed off its high.
  • The bulls hope that the rally will lead to months of sideways to up trading (broad bull channel). 
  • They want to get another strong leg up completing the wedge pattern with the first two legs being July 27 and March 21. The third leg up is currently underway.
  • They also got another leg up in the last two weeks, creating an embedded wedge in the third leg up (May 23, Jun 28, and Jul 12).
  • If the market trades lower, they want the pullback to form a higher low or a double bottom bull flag (with the May 31 or the April 19 low) followed by a resumption of the broad bull channel.
  • They want the 20-week EMA or the bull trend line to act as support.
  • The bears want a reversal from a higher high major trend reversal, a wedge pattern (Jul 27, Mar 21 and Jul 12) and a trend channel line overshoot.
  • They also see an embedded wedge in the current leg up (May 23, Jun 28, and Jul 12) and a possible final flag pattern (sideways consolidation from the mid to the end of Jun).
  • They want a TBTL (Ten Bars, Two Legs) pullback trading far below the 20-week EMA.
  • At the very least, they want a retest of the April 19 low, even if it forms a higher low.
  • The problem with the bear’s case is that they have not been able to create strong bear bars with follow-through selling.
  • The bears need to create bear bars with follow-through selling to convince traders that they are at least temporarily back in control.
  • Because of the strong move-up, the bears will need a strong reversal bar or at least a micro double top to increase the odds of a deeper pullback.
  • Since this week’s candlestick is a bull bar closing around the middle of its range with a long tail above, it can be a sell signal bar albeit weaker. 
  • The move is becoming slightly climactic and overbought. Traders are looking for reasons to take profits off the table.
  • The risk of a minor pullback and profit-taking event is elevated.
  • However, the bears still need to show that they are at least temporarily back in control by creating a few consecutive bear bars. Until they can do that, traders will not be willing to sell aggressively.
  • For now, the market remains Always In Long. The odds continue to slightly favor sideways to up.
  • Opening swing long positions at the current elevated levels might not be the best action to take.
  • Instead, traders might want to trim or take some profits and only look to buy on a pullback (probably towards the 20-week EMA).
  • Traders will see if the market can continue the sideways to up buy climax for another 1-3 weeks.
  • Or will the bears be able to create a strong entry bar with follow-through selling instead?
  • Traders are looking for signs of a loss of momentum in the weeks ahead.

The Daily S&P 500 Emini chart

Emini Daily: Embedded Wedge, Final Flag, Buy Climax
  • The market traded higher on Wednesday in a 7-bar bull microchannel. Thursday formed an outside bear bar but there was no follow-through selling. Friday made a new all-time high but reversed to close off its high.
  • Last week, we said that odds continue to slightly favor sideways to up. If the market continues up in a vertical type of trading in the weeks ahead, traders should be prepared for a buy climax followed by a couple of weeks of pullback.
  • So far, the move up since July 1 has the appearance of a buy climax.
  • The bears want a reversal from a higher high major trend reversal and a large wedge pattern (Jul 27, Mar 21 and Jul 12).
  • They want a reversal from a wedge in the current leg up (May 23, Jun 28, and Jul 12) and from a final flag pattern (starting from the second half of Jun).
  • They want a two-legged pullback lasting at least a few weeks.
  • At the very least, they want a retest of the April 19 low, even if it only forms a higher low.
  • The problem with the Bears case is that they have not yet been able to create consecutive bar bars with follow-through selling.
  • They need to create consecutive bear bars closing near their lows with follow-through selling to increase the odds of a deeper pullback.
  • The bulls hope that the current rally will form a spike and (broader) channel which will last for many months. 
  • They got another strong leg up creating a wedge pattern in the current leg (May 23, Jun 28, and Jul 12).
  • If a pullback forms, they want a reversal from a double bottom bull flag (with either May 31 or April 19 lows) and a higher low, followed by a resumption of the broad bull channel.
  • They want the 20-day EMA or the bull trend line to act as support.
  • So far, the market continues to trade sideways to up with not much selling pressure. The market remains Always In Long.
  • Until the bears start creating strong bear bars with follow-through selling, traders will not be willing to sell aggressively.
  • The market appears to be moving up in a vertical type of trading with very little selling pressure (buy climax).
  • However, the move is becoming slightly climactic and overbought. The odds of at least a small pullback are increasing.
  • If there is a pullback, traders will see the strength of the pullback. If it is sideways with poor follow-through selling, the odds of another leg higher will increase.
  • If instead, the bears start getting big consecutive bear bars closing near their lows, it would likely signal the start of a two-legged sideways-to-down pullback phase.
  • Traders will be watching for signs of unsustainable behaviours such as:
  • Big consecutive bull bars closing near their highs late in a trend, or;
  • Bull microchannel (or tight bull channel) which is losing momentum (moving more sideways instead of up).
  • For now, traders will see if the bulls can continue to create more follow-through buying or will the market form a minor pullback.
  • Sometimes, a buy climax can last slightly longer than traders expect it to.

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