Market Overview: S&P 500 Emini Futures
The market formed a weekly Emini pullback, closing as a bear bar with a prominent tail below. The bears need to create a follow-through bear bar next week to increase the odds of a deeper pullback. The bulls see another possible embedded wedge forming (the first two legs are Sept 26 and Oct 17) and want another small leg up.
S&P500 Emini futures
The Weekly S&P 500 Emini chart
- This week’s Emini candlestick was a bear bar closing below the middle of its range with a prominent tail below.
- Last week, we said that the market may still trade slightly higher. The recent candlesticks are becoming smaller which indicates a loss of momentum. The risk of a minor pullback is increasing.
- The bulls hope the market is in a broad bull channel phase and want a resumption of the move.
- They want another leg up completing the wedge pattern with the first two legs being March 21 and July 16 highs and completing the embedded wedge in the current leg up with the first two legs being August 30 and September 26 highs. The third leg up is currently underway.
- They see another possible embedded wedge forming (the first two legs are Sept 26 and Oct 17) and want another small leg up.
- If there is a deeper pullback, they want the 20-week EMA to act as support.
- The bears want a reversal from a higher high major trend reversal.
- They hope that the recent sideways candlesticks (mid-Sept to early Oct) will be the final flag of the move.
- They want a reversal from a large wedge (Mar 21, Jul 16, and Oct 17) and an embedded wedge (Aug 30, Sep 25, and Oct 17).
- They need to create a follow-through bear bar next week to increase the odds of a deeper pullback.
- Since this week’s candlestick is a bear bar with a prominent tail below, it can be a sell signal bar for next week albeit weaker.
- The recent candlesticks are becoming smaller which indicates a loss of momentum. The risk of a minor pullback is increasing.
- Traders will see if the bears can create a follow-through bear bar, something they have not been able to do since July.
- If they do, we may get a deeper pullback (maybe towards the 20-week EMA) in the next few weeks.
- Or will they fail to create a follow-through bear bar, and the bulls make a new all-time high instead?
- Odds favor any pullback to be minor and not lead to a reversal.
- The election day represents some uncertainty. Traders should be prepared for volatility.
The Daily S&P 500 Emini chart
- The market traded sideways to down in the first half of the week testing the 20-day EMA. Friday traded higher but reversed into a bear bar closing near its low.
- Last week, we said that the market remains Always In Long. Until the bears can create strong bear bars with follow-through selling, traders will not be willing to sell aggressively.
- The bulls want the third leg to complete the large wedge pattern with the first two legs being on March 21 and July 16.
- They also want the third leg to complete the embedded wedge (the first two legs being on Aug 30 and Sep 26).
- The third leg up is currently underway.
- If the market trades lower, they want any pullback to form a higher low (versus the September low).
- The bears want a reversal from a higher high major trend reversal and a small double top (Oct 17 and Oct 25).
- They see a large wedge pattern (Mar 21, Jul 16, and Oct 17) and an embedded wedge (Aug 30, Sep 25, and currently Oct 17).
- They hope that the recent sideways consolidation (mid-Sept to early Oct) will be the final flag of the move.
- The problem with the bear’s case is that they have not yet been able to create strong bear bars with sustained follow-through selling.
- While this can happen soon, until it does, traders will not be willing to sell aggressively.
- They need to create consecutive bear bars closing near their lows trading far below the 20-day EMA to show they are back in control.
- For now, the market remains Always In Long.
- However, the recent sideways overlapping candlesticks and poor follow-through buying also indicate stalling, at least temporarily.
- For now, traders will see if the bears can start to create strong bear bars with follow-through selling.
- Or will the market continue to stall sideways in a shallow pullback, followed by a breakout into new all-time high territory instead?
- Election day represents uncertainty. Traders should be prepared for volatility.
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