Emini Start of Pullback from Wedge Bear Flag?

Market Overview: S&P 500 Emini Futures

The S&P 500 Emini futures bears hope that this week is the Emini start of pullback from the wedge bear flag. The weekly candlestick closed below last week’s low and the 20-week exponential moving average. They need to create a follow-through bear bar to increase the odds of lower prices. The bulls hope that this week was simply a pullback and wants a retest of the December 1 high.

S&P500 Emini futures

The Weekly S&P 500 Emini chart

• This week’s Emini candlestick was a big bear bar closing near the low.
• Last week, we said that the odds slightly favor the Emini to trade at least a little higher. However, the wedge bear flag increases the odds of a pullback within 1 to 3 weeks.
• This week closed below last week’s low and the 20-week exponential moving average.
• The bulls got a reversal higher from a wedge bottom (Feb 24, June 17 and Oct 13) with a nested wedge (Sept 6, Sept 30 and Oct 13).
• They then got a second leg sideways to up from a higher low major trend reversal (Nov 3).
• While the move up from October low is in a tight bull channel, there is a lot of overlapping price action. 
• That means the bulls are not yet as strong as they would like to be. 
• The problem with the bull’s case is that the selloff from August was very strong. The sideways to up leg may lead to a lower high. For now, this remains true.
• The bulls need to create strong consecutive bull bars closing near their highs breaking far above the major bear trend line to signal the end of the correction.
• The bulls hope that this week was simply a pullback and want a retest of the December 1 high.
• They want the 20-week exponential moving average to act as support and hope the Emini will trade sideways around it instead of a deep pullback.
• The bears hope that the move up is simply forming a wedge bear flag (Oct 5, Nov 15, and Dec 1), a double top bear flag (Sept 12) and a lower high.
• Bears see the selloff from January as a broad bear channel. The major bear trend line remains as resistance above.
• Since the October low, the bull bars are big, closing near their highs, while the bear bars are weak and had no follow-through selling. That means stronger buying pressure.
• The bears hope that this week is the start of a deeper pullback. They will need to create a follow-through bear bar to increase the odds of lower prices.
• They want a retest of the October low followed by a strong breakout and a measured move down to around 3450, or the 3400 Big Round Number which is also the 2020 high.
• Since this week was a bear bar closing near the low, it is a good sell signal bar for next week.
• The Emini may gap down on Monday. Small gaps usually close early.
• For now, traders will see if the bears can get a consecutive bear bar. If they do, the odds of the sideways to down pullback phase have begun.
• The wedge bear flag increases the odds of a pullback within 1 to 3 weeks. It may have started this week.
• However, odds slightly favor at least a small second leg sideways to up to retest the bull leg extreme after the pullback.

The Daily S&P 500 Emini chart

• Monday traded lower with follow-through selling on Tuesday. Midweek onwards traded sideways with Friday reversing into an outside bear bar closing near its low. 
• Previously, we said that the odds slightly favor the Emini to trade at least a little higher. The wedge bear flag and double top increase the odds that we may see a deeper pullback within 1 to 3 weeks. The pullback may have begun.
• The bears want a reversal down from a wedge bear flag (Nov 1, Nov 15, and Dec 1) and a double top bear flag (Sept 12) around the major bear trend line.
• Bears see the selloff from January as a broad bear channel.
• They want a retest of the October low followed by a strong breakout and a measured move down to 3450, or slightly lower around the 3400 big round number which is also 2020 high.
• They will need to create strong consecutive bear bars closing near their lows (like August) to increase the odds of a reversal down.
• The bears hope that this week is the start of a 2-legged sideways to down pullback and want another leg down.
• Bulls got a reversal higher from a lower low major trend reversal with the June low, a wedge bull flag (Feb 24, June 17, and Oct 13) and a nested wedge (Sept 6, Sept 30 and Oct 13).
• They then got the second leg sideways to up from a higher low major trend reversal (Nov 3).
• So far, the bulls have yet to break above the major bear trend line.
• The problem with the bull’s case is that the selloff from August 16 was very strong. The current sideways to up pullbacks may lead to a lower high. For now, this remains true.
• The move up from October had a lot of overlapping price action. The bulls are not yet as strong as they would like to be.
• The bulls need to create strong consecutive bull bars closing near their highs and trading far above the major bear trend line, to convince traders that a reversal higher is underway.
• Since the pullback on Wednesday to Friday was weak, odds slightly favor the Emini to trade at least a little lower.
• Traders will see if the bears can create a strong second leg sideways to down or if next week trades slightly lower but reverses up again to retest Dec 1 high.

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