Emini pullback possible from above top of 4-month bull channel

Weekend report co-author Andrew A.

Market Overview: Weekend Market Analysis

The SP500 Emini futures continue to make new highs. The daily chart should break above the top of the 4-month bull channel this week, but then an Emini pullback to the middle of the channel.

The EURUSD Forex is reversing up from a double bottom with the March low. It should trade sideways to up for a couple weeks.

EURUSD Forex market

The EURUSD weekly chart

• The EURUSD Forex weekly bar traded lower but reversed from a higher low double bottom with March low.
• Bears failed to get follow-through, trapping sellers who sold below last week’s low.
• This week closed near the high and is also a High 2 bottom with the high of 3 weeks ago. It is a buy signal bar for next week.
• The EURUSD is reversing up from a micro wedge bottom over the past 10 weeks.
• Probably only minor reversal up after 10 bars with a lot of overlap. The initial target is July 30^th lower high.
• If it reaches July’s high, EURUSD might then go sideways and continue the tight trading range that began in June.
• Following a break of the minor bear trendline 2 weeks ago, EURUSD could also be reversing up from a lower low Major Trend Reversal setup.
• Traders know that breakouts from trading ranges fail most of the time and price has inertia. The yearlong trading range is likely to continue.
• A small reversal bar at the bottom of a trading range can sometimes offer good trader’s equation to the bulls. In trading ranges, traders Buy Low and Sell High.
• The bulls will need signs that they are in control. These include bull bars closing near their highs, consecutive bull bars closing near their highs, big bull bars, and bars with little overlap.
• The bears want a breakout below November’s low at the bottom of the yearlong trading range, but most breakouts fail. Therefore, there are probably more buyers in this area than sellers.
• Next week should trigger the buy signal by going above this week’s high. If the bulls are in control, they should soon start to create several bull bars closing near their highs. More likely, the EURUSD will have a weak rally for a few weeks and continue the trading range that began in mid-June. Then, traders will decide between a break below the November low or a rally up to the May high.

S&P500 Emini futures

The Monthly Emini chart

• So far, August is the 7^th consecutive bull bar trading, and it is at a new high.
• In the 25-year history of the Emini, there have been only 2 times when there were 7 consecutive bull bars on the monthly chart.
• If August remains a bull bar, this would be the 3^rd time. There has never been a streak of 8 consecutive bull bars so August or September should be a bear bar.
• If either of them is, the yearlong rally will be a parabolic wedge. That should lead to 2 to 3 months of sideways to down trading.
• But, because the bull trend is so relentless, traders will buy the Emini pullback, even if it is 20%.
• The bears have not yet been able to create a bear bar or even a bull bar with a prominent tail on top for 6 months. 
• Sometimes in a buy vacuum, sellers stop selling until the price reaches measured move or other resistance.
• The next measured move is 4537 based on the height of the pandemic crash.

The Weekly S&P500 Emini futures chart

• The Emini weekly candlestick was a small bull bar at a new high.
• The Emini has been in a Small Pullback Bull Trend for more than 60 bars, which is unusual, and therefore unsustainable and climactic.
• A Small Pullback Bull Trend ends with a big pullback. The biggest pullback so far was the 10% selloff in September. A bigger pullback means 15 to 20%.
• The bears have not been able to create consecutive bear bars.
• There are also no prominent tails above bars. This means the bulls have been buying into closes, and they do that because they expect the next bar to be higher.
• The move up is in a tight bull channel which is also a sign of strength for the bulls.
• Until the bulls aggressively take profits, the bears will not sell. The bears need to see one or more big bear bars before they will look for a 2- to 3-month correction.
• Until then, traders will continue to bet on higher prices and that every reversal attempt will fail.
• The next targets for the bulls are the 4537 measured move (based on the height of the pandemic sell-off) and the top of the weekly trend channel line around 4600.
• The top of the weekly channel is probably too far for the Emini to get there without first having a pullback.

The Daily S&P500 Emini futures chart

• The Emini is in an 8-day tight bull channel, so strong rally.
• It is just above the measured move based on May/June trading range and within a few points of the top of the 4-month bull channel.
• The bull trend is strong, and therefore traders expect the Emini to break above the top of the bull channel.
• However, most breakouts fail. The Emini will probably start to reverse back down to the middle of the channel within about 5 bars after the breakout.
• If there is a pullback, traders will be monitoring if buyers return again around the 50-day simple moving average.
• While the trend has been overextended and extreme, bulls continue to bet on higher prices because they know that in a strong trend, most reversal attempts fail.
• Traders need to see aggressive profit-taking and consecutive strong bear bars before they will be willing to short aggressively. Traders will not believe a correction is underway until it is already about half over.

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