Monthly S&P500 Emini futures candlestick chart:
Testing buy climax high
The monthly S&P500 Emini futures candlestick chart has had a 4 month rally after a 3 month reversal from a buy climax. Since the rally lacks consecutive strong bull trend bars, there is still a 50% chance that it will fail around the all-time high. The bulls want the month to close on its high and above 2800. Furthermore, they want August to also be a bull bar closing on its high. If so, the rally will probably continue to between 3,000 – 3,200 by the end of the year.
Possible double top, but it would only lead to a minor reversal
If the bulls fail to get consecutive strong bull bars, then the rally will probably fail around the January high. If it forms a double top with the January high, the pattern would only have about 10 bars. That is usually too small for a major reversal. Therefore, if the Emini sells off within the next few months, the selloff will probably be minor.
This means that it would be a 2nd leg down after the February selloff. Sometimes a 2nd leg down can be strong. This is because the bears see it as a break below the neck line of a double top.
However, the bear breakout would likely fail within a couple of months. The monthly chart would then either continue in its 7 month trading range, or rally from a High 2 bull flag to a new high.
Therefore, even if there is a 20% correction in the next 6 months, it would probably simply be a bull flag on the monthly chart. The small double top would only have a 30% chance of leading to a bear trend on the monthly chart.
It is important to note that a 20% pullback on the monthly chart would be a bear trend on the daily chart. But, that would likely be a good buying opportunity. The bull trend on the monthly chart is so strong that a move above 3,000 is likely in 6 – 12 months, even if there is a selloff to 2,300 1st.
Weekly S&P500 Emini futures candlestick chart:
Small Pullback Bull Trend
The weekly S&P500 Emini futures candlestick chart has consecutive bull bars closing near their highs. This is a sign of strong bulls. However, the bears hope that it is simply a buy vacuum test of the March lower high of 2811.00. Traders will find out over the next few weeks.
If the bears get a strong bear bar, traders will sell below its low. They would see it as a sell signal bar for a double top with the March high. The bears want a break below the April low neck line of the double top. Then, they would hope for a 250 point measured move down. However, it is more likely that the selloff would not break below the April low. Instead, it would simply be just a 1 – 2 month bear leg in the 6 month trading range.
Alternatively, if the bulls get consecutive closes above that March high, traders will look for a 250 point measured move up over the next 6 months. The monthly chart was strongly bullish for 3 years. In addition, the momentum is increasing as the rally continues. Therefore, it is more likely that the bulls will reach 3,100 before the bears get 2,300.
Daily S&P500 Emini futures candlestick chart:
Emini 2800 double top or breakout to new all-time high?
The daily S&P500 Emini futures candlestick chart rallied strongly for 2 weeks. Furthermore, the swing up from the May 3 low is strong enough to be a resumption of last year’s bull trend. However, the bulls need at least a 20 point break above the March 13 high. In addition, they need consecutive big bull bars in that breakout. Finally, they want at least 2 consecutive closes 10 – 20 points above that high. If the rally is a resumption of the bull trend, the bulls will accomplish most of this.
On the other hand, if they fail, then the bears will get at least a 2 legged swing down over the next few months. That selloff would still probably only be a bear leg in the 6 month trading range. It would likely stay above the February low. But, there is a 30% chance that it would break strongly below that February low.
When looking at weekly and daily charts, the dominant feature for me is a broad bull channel from April, 2. Bears are looked fairly strong. If the bulls will get a break above bull channel line they are likely to fail with 75% probability and probably within 5-6 bars (weeks). Al, am I right or wrong? Where I am wrong? Thank you in advance!
Yes, you are right, but that is not what is most likely. In the bull case, what usually happens is that the channel enters a trading range for 20 – 50 bars and then breaks above the trading range. That is usually a success breakout that leads to a new channel. On a higher time frame, the channels are 1 – 5 bar breakouts and the trading ranges are bull flags.
In the bear case, there is either a breakout above the channel, which, like you say, has a 75% chance of reversing, or a top, like a major trend reversal, within the trading range, and then a trend reversal.