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Emini TCL Overshoot (Trend Channel Line)

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Market Overview: S&P 500 Emini Futures

The S&P 500 Emini futures traded higher and formed a TCL Overshoot (trend channel line). The bulls want a strong breakout above the August high and a measured move up to around the March 2022 high area. The bears want a failed breakout above the August high and at least a pullback following the trend channel line overshoot.

S&P500 Emini futures

The Weekly S&P 500 Emini chart

Emini Weekly: TCL Overshoot but Tight Bull Channel
  • This week’s Emini candlestick was a big bull bar closing in the upper half with a prominent tail above.
  • Last week, we said that while the odds slightly favor the market to still be in the sideways to up phase, a minor pullback can begin at any moment.
  • This week traded above the August high but did not close above it.
  • The bulls got a strong leg up creating the wedge pattern with the first two legs being December 13 and February 2. 
  • The move up is in a tight bull channel and a 4-bar bull microchannel. That means strong bulls.
  • They want a breakout far above the August high followed by a measured move using the height of the 6-month trading range which will take them to the March 2022 high area.
  • They will need to create follow-through buying trading far above the August high.
  • If there is a pullback, they want at least a small second leg sideways to up retesting the current leg extreme (June 16).
  • The bears want a reversal down from a wedge pattern (Dec 13, Feb 2, and Jun 16) and a double top with the August high.
  • They hope to get a failed breakout above the August high. If there is a failed breakout, it would usually occur within 5 bars after the breakout.
  • They want at least a small pullback from the TCL Overshoot (trend channel line).
  • The problem with the bear’s case is that they have not been able to create credible selling pressure since the March low. 
  • They will need to create strong bear bars with follow-through selling to convince traders that a deeper pullback could be underway.
  • At the very least, the bears will need a strong reversal bar or a micro double top before they would be willing to sell more aggressively.
  • Since this week was a bull bar closing in its upper half, it is a buy signal bar for next week, albeit weaker because of the prominent tail above. It is not a strong sell signal bar.
  • While the odds continue to slightly favor the market to still be in the sideways to up phase, a minor pullback can begin at any moment.
  • Traders will see if the bulls can continue creating consecutive bull bars or will the Emini stall around the August high and begin the pullback phase.

The Daily S&P 500 Emini chart

Emini Daily: Tight Channel, Climax, Weak Selling Pressure
  • The Emini traded higher for the week. Friday opened higher but reversed to close as a bear bar near its low.
  • Previously, we said that the odds continue to slightly favor sideways to up. This can change if the bears manage to create strong consecutive bear bars closing near their lows.
  • This week continued the move up and broke above the trend channel line.
  • The bulls want a measured move up using the height of the 6-month trading range which will take them near the March 2022 high.
  • They will need to break far above the August high with follow-through buying to increase the odds of reaching the measured move target.
  • The move up since May 24 low is in a tight bull channel which means strong bulls.
  • However, the move up is also slightly climactic and has the shape of a parabolic wedge (May 30, Jun 5, and Jun 16). 
  • Thursday’s big bull bar late in a trend could be a sign of climactic price action.
  • A minor pullback can begin at any moment. If there is a pullback, a reasonable target would be the 20-day exponential moving average area.
  • Traders will still expect at least a small leg to retest the current leg extreme high (Jun 16).
  • The bears have not yet been able to create credible selling pressure. 
  • They see the move up from October 2022 simply as forming a large wedge (Dec 13, Feb 2, and Jun 16) within a broad bear channel.
  • The longer they fail to create the trend resumption lower (the more candlesticks in between) from the selloff from January – October 2022 to now, the less relevant the effects of the prior move down would have on the current price action.
  • The bears want a failed breakout above the August high and a reversal from a trend channel line overshoot.
  • They will need to create follow-through selling early next week to increase the odds of a deeper pullback.
  • Because of the lack of strong bear bars with follow-through selling, odds continue to slightly favor sideways to up.
  • However, the move up is also climactic and a minor pullback can begin at any moment.
  • The market is closed on Monday for Juneteenth National Independence Day.

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