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Emini Embedded Wedge

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Market Overview: S&P 500 Emini Futures

The weekly chart formed an Emini embedded wedge in the current leg up from January. The bulls want a strong breakout into a new all-time high territory, hoping that it will lead to many months of sideways to up trading. The bears hope to get a TBTL (Ten Bars, Two Legs) pullback of at least 5-to-10% but have not yet been able to create strong bear bars.

S&P500 Emini futures

The Weekly S&P 500 Emini chart

Emini Weekly: Parabolic Wedge, Embedded Wedge, Emini Embedded Wedge
  • This week’s Emini candlestick was a big bull bar breaking above the outside doji.
  • Last week, we said that while the market continues to be Always In Long, the rally has lasted a long time and is slightly climactic. Traders should be prepared for a minor pullback which can begin within a few weeks.
  • This week continued higher following the big gap up on Thursday following Nvidia’s earnings release.
  • The bulls have a tight bull channel. That means strong bulls.
  • They want a strong breakout into a new all-time high territory, hoping that it will lead to many months of sideways to up trading. They will need to continue to create sustained follow-through buying above the prior all-time high.
  • However, we may also see some profit-taking activity once the market starts to stall. 
  • If a pullback begins, the bulls want it to be sideways and shallow, filled with bull bars, doji(s) and overlapping candlesticks.
  • The bears hope that the strong rally is simply a buy-vacuum test of the prior all-time high.
  • They want a reversal from a higher high major trend reversal and a large wedge pattern (Feb 2, July 27, and Feb 23). They want a failed breakout above the all-time high and the trend channel line.
  • They also see a parabolic wedge in the third leg up since October (Nov 22, Dec 28, and Feb 23) and a micro wedge (Jan 24, Feb 9, and Feb 23).
  • They hope to get a TBTL (Ten Bars, Two Legs) pullback of at least 5-to-10%. They want at least a test of the 20-week EMA.
  • The problem with the bear’s case is that the rally is very strong. They would need to create a few strong bear bars to indicate that they are at least temporarily back in control. So far they have not yet been able to do so.
  • Since this week’s candlestick is a big bull bar closing near its high, it is a buy signal bar for next week.
  • However, being one of the biggest bull bars appearing late in a trend may be a sign of climactic behavior.
  • The recent candlesticks having some overlapping ranges also indicate a slight loss of momentum from the bulls.
  • While the market continues to be Always In Long, the rally has lasted a long time and is slightly climactic.
  • Traders should be prepared for a minor pullback which can begin within a few weeks. This remains true.
  • However, until the bears can create strong bear bars, traders will not be willing to sell aggressively.
  • Sometimes, a euphoric market (as it is now) can continue higher (even when seemingly impossible) into a blow-off top.
  • Traders will see if we start to get more selling pressure or will the bulls continue to create follow-through buying.

The Daily S&P 500 Emini chart

Emini Daily: Parabolic Wedge, Embedded Wedge
  • The market traded lower earlier in the week but lacked follow-through selling. Thursday gap up following Nvidia’s earnings release but lacked follow-through buying on Friday.
  • Last week, we said that the odds slightly favor the market to still be Always In Long. However, the rally has lasted a long time and is slightly climactic and traders should be prepared for a minor pullback which can begin within a few weeks.
  • The bulls got a tight bull channel up testing the prior all-time high (Jan 2022).
  • They hope that the current rally will form a spike and channel which will last for many months after a deeper pullback.
  • They want another leg up completing the wedge with the first two legs being January 30 and February 12. They got what they wanted.
  • The move up since January now consists of 3 pushes, therefore a wedge (Jan 30, Feb 12, and Feb 23).
  • If there is a deeper pullback, the bulls want at least a small sideways to up leg to retest the current trend extreme high (now Feb 23).
  • The bears hope that the strong rally is simply a buy vacuum retest of the prior all-time high.
  • They want a reversal down from a higher high major trend reversal, a large wedge pattern (Feb 2, July 27, and Feb 23) and a parabolic wedge (Nov 22, Dec 28, and Feb 23).
  • They also see an embedded wedge in the current leg up (Jan 30, Feb 12, and Feb 23).
  • The bears will need to create consecutive bear bars closing near their lows and trading far below the 20-day EMA and the bear trend line to indicate that they are at least temporarily back in control.
  • Since Friday was a small doji bear bar, it is a sell signal bar for Monday albeit not very strong. If the bears can create sustained follow-through selling, it may lead to the start of the pullback phase.
  • For now, odds slightly favor the market to still be Always In Long. However, the rally has lasted a long time and is slightly climactic. 
  • While there are no signs of strong selling pressure yet, traders should be prepared for a minor pullback which can begin within a few weeks. This remains true.
  • Traders will see if the bulls can continue to create sustained follow-through buying above the all-time high.
  • Or will the market continue to stall around the all-time high area, prompting more profit-taking price action to begin soon?

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