E-mini Spike and Bull Channel

Market Overview: S&P 500 E-mini Futures

The market formed an E-mini spike and bull channel in the last 8 weeks. Bulls want any pullback to be weak and sideways, lacking follow-through, with overlapping candlesticks and prominent lower tails. Bears need to generate strong bear bars breaking below the minor bull trend line to indicate strength.

S&P500 E-mini futures

The Weekly S&P 500 E-mini chart

• This week formed a bull bar, closing in its upper half with a prominent tail below.
• Last week, we said traders would watch whether bulls could create more follow-through buying or whether the market would start to stall around the trend channel line area. There could be buyers below the first pullback from such a strong bull microchannel.
• The market formed a pullback early in the week but found buyers below the bull microchannel.
• Bulls have generated a strong rally in a spike and bull channel.
• Bulls want a measured move to around 8000, based on the height of the initial spike (from the March 30 low to the April 17 high).
• If the market forms a pullback following the breakout above the trend channel line, bulls want it to be weak and sideways, lacking follow-through, with overlapping candlesticks and prominent lower tails.
• Bulls want at least a small second leg sideways to up to retest the trend extreme high (currently May 14) following any pullback.
• If the market trades lower, bulls want the April 23 low (start of the bull channel) or the 20-week EMA to act as support.
• Bears view the move as a parabolic buy climax that is unsustainable without a sideways-to-down pullback.
• Bears want a failed breakout above the trend channel line within a few bars, followed by a test of the bull trend line.
• Bears want a two-legged sideways-to-down pullback lasting a few weeks.
• Bears need to generate strong bear bars breaking below the minor bull trend line to indicate strength.
• After that, bears want a weak retest of the trend extreme high, forming a lower high major trend reversal or a small double top.
• If the market trades higher, bears hope last week’s doji becomes the final flag of the rally.
• The market has rallied strongly over the past 8 weeks in a tight bull channel.
• The market remains Always In Long.
• While the move is strong, it has lasted a long time without a significant pullback, which is unsustainable and tends to attract profit-taking.
• However, strong momentum can sometimes last longer than traders expect.
• Traders will watch whether bulls can create more follow-through buying or whether the market starts to stall around the trend channel line area.
• Breakouts above a trend channel line typically fail within 2 to 5 bars, leading to a pullback into the bull channel or a test of the bull trend line.
• For now, the market may still be in the sideways-to-up phase, but the risk of a pullback from an overextended move is increasing.
• For now, any pullback would likely be minor.

The Daily S&P 500 E-mini chart

• The market traded slightly lower early in the week, followed by a retest of the trend extreme high on Friday, forming a lower high.
• Last week, we said traders would watch whether bulls could create more follow-through buying. If a pullback formed, traders would watch whether it was weak and sideways or strong, with consecutive bear bars closing near their lows.
• Bears view the rally as overextended and climactic.
• Bears see a parabolic wedge top (May 1, May 11, and May 14) and a small double top (May 14 and May 22).
• Bears want a failed breakout above the trend channel line, followed by a pullback to test the bull trend line.
• At a minimum, bears want a pullback to retest the start of the channel around the April 23 low area.
• Bears hope this week’s pullback, breaking a smaller minor bull trend line and followed by a retest of the prior high, can lead to a second leg sideways to down.
• The problem with the bears’ case is that they have not been able to create strong bear bars demonstrating strength.
• Bears need consecutive strong bear bars closing near their lows and breaking strongly below the bull trend line, followed by a weak retest of the trend extreme high, to create a credible setup.
• Bulls have generated a strong spike and channel pattern, making new all-time highs.
• Bulls want a measured move to around 8000, based on the height of the initial spike (from the March 30 low to the April 17 high).
• Bulls want a strong breakout above the trend channel line with sustained follow-through buying.
• If the market forms a larger pullback, bulls want it to be weak and sideways, with overlapping candlesticks and prominent lower tails, followed by at least a small sideways-to-up leg to retest the trend extreme high (now May 14).
• If the market forms a second leg down next week, bulls want it to stall around the May 19 high area, forming a double bottom bull flag.
• If the market trades lower, bulls want the 20-day EMA or the April 23 low to act as support.
• The market is Always In Long.
• The market has formed a spike and channel bull trend.
• The bull channel phase starting from the April 23 low is relatively tight, which acts as a spike on a higher time frame chart.
• Consecutive spikes (climaxes) increase the odds of a minor pullback within a few weeks.
• The market remains in the sideways-to-up phase, with an increasing risk of a two-legged minor pullback.
• While the market appears overextended and climactic, strong momentum can sometimes last much longer than traders expect.
• Traders will watch whether bulls can create more follow-through buying. If a pullback forms, traders will watch whether it is weak and sideways or strong, with consecutive bear bars closing near their lows.
• If the market trades higher, traders will watch for unusually large bull bars or a blow-off top.
• Traders will also watch whether the market forms a second leg sideways to down that stalls around the May 19 low area.
• For now, any pullback would likely be minor.

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