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Emini in parabolic wedge buy climax and 11-day bull micro channel

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Market Overview: Weekend Market Analysis

The SP500 Emini futures contract is in a parabolic wedge buy climax. There is also a streak of 11 bull days and an 11-day bull micro channel. This should attract profit taking within a couple weeks.

The EURUSD Forex weekly chart is turning up from a wedge bull flag. However, the rally is probably just a bull leg in a 9-month trading range.

EURUSD Forex market

The EURUSD weekly chart has strong 2-week rally in 9-month trading range

EURUSD Forex weekly candlestick chart has wedge bottom and wedge top
  • Big bull bar this week after wedge bottom 2 weeks ago.
  • There are 2 wedges on the weekly chart. Last year formed a yearlong wedge top. The selloff from that wedge top formed a 3-month wedge bottom.
  • Wedge reversals typically have at least 2 legs.
  • The 1st leg down from last year’s wedge top ended 2 weeks ago. That 1st leg down was a wedge bottom.
  • The 2-week rally is a pullback from the 1st leg down from last year’s wedge top. A 2nd leg sideways to down should begin within about a month.
  • The 2-week rally is also the 1st leg up from the 3-month wedge bottom.
  • The 2nd leg down from last year’s wedge top will probably be the pullback from the 1st leg up from the March wedge bottom. There should then be a 2nd leg up.
  • Since multiple reversals are likely, the trading range that began in August should continue for at least a couple more months.
  • 40% chance that the 2-week rally is a resumption of last year’s bull trend, and there will not be a 2nd leg sideways to down, to the November 4 low from last year’s wedge top.

S&P500 Emini futures

The Weekly S&P500 Emini futures chart is accelerating up to top of channel

Emini S&P500 futures weekly candlestick chart in buy climax at top of bull channel
  • Yearlong tight bull channel (Small Pullback Bull Trend), which is very strong bull trend.
  • 3 consecutive bull bars closing near their highs, so accelerating up to top of bull channel.
  • Acceleration up late in a bull trend usually attracts profit takers.
  • This increases chance of a 2- to 3-week pullback beginning at any time.
  • First reversal down in Small Pullback Bull Trend is typically minor. That means 70% chance it would lead to a bull flag, or a trading range (like in September and October last year). Only a 30% chance that it would reverse abruptly down into a bear trend (the March 2020 bottom was an example of an abrupt reversal up without a 2nd leg down).

The Daily S&P500 Emini futures chart is in extreme buy climax

Emini SP500 futures daily chart accelerating up at top of 11-day bull micro channel.
  • 3 legs up in tight bull channel over past 3 weeks is a parabolic wedge buy climax, which usually attracts profit takers.
  • Streak of 11 consecutive bull trend days is unusual, and therefore climactic.
  • 11-bar bull micro channel (every low above low of prior day) is unusual, and therefore climactic.
  • Climaxes attract profit takers because stop becomes far away, which increases risk. Easiest way to reduce risk is to reduce position size by taking some profits.
  • Climaxes can last much longer than what might seem reasonable. When the profit taking begins, it can be fast as bulls exit in a panic. It will probably begin in April.
  • For example, the buy climax in January 2018 lasted a month. There was a 10% correction over the next couple weeks.
  • The buy climax from the May 22, 2020 low lasted 12 days, and ended with a 9% correction one week later.
  • The September 2 buy climax lasted 10 days, and ended with a 10% correction over the next 3 weeks.
  • After all 3 reversals, the bull trend resumed. The bulls will buy the 1st 10% selloff this time as well.
  • Once the profit taking begins, there is a 50% chance there will be about a 10% pullback, and a 30% chance of a 20% pullback.
  • This buy climax is unusually extreme on the daily and weekly charts. At some point, the bulls will take some profits.
  • Since the buy climax is as extreme as it is, the Emini might go sideways for many months before the bulls will be willing to buy aggressively again.
  • Even if a reversal down is only about 10%, it might take many months for the Emini to make a new high. Consequently, the Emini might soon form the high for the year, or at least until late in the year.

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Charts use Pacific Time

When I mention time, it is USA Pacific Time (the Emini day session opens at 6:30 am PT, and closes at 1:15 pm PT). You can read background information on the intraday market reports on the Market Update page.

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