Market Overview: Weekend Market Analysis
The SP500 Emini futures market has been sideways for 6 weeks in a yearlong strong bull trend, and therefore in Breakout Mode. Friday is a sell signal bar for a double top, but there will probably be buyers below. A bull breakout of the range is slightly more likely than a bear breakout due to bulls slight edge.
The EURUSD Forex market on the weekly chart has rallied strongly for 2 months. It is getting near the January 6 high at the top of the 10-month trading range, and there is now a micro wedge. Since the sell signal bar is weak and the bull channel is tight, there will probably be buyers below this week’s low.
EURUSD Forex market
The EURUSD weekly chart
- Bull bar but tail on top, and close in middle so reversal bar.
- Bull body so weak sell signal bar for micro wedge, lower high major trend reversal, and double top.
- Because 2-month rally is strong, if there is a reversal, it will probably stop at around the 1.20 Big Round Number, which has been important since August. There is a cluster of support there: 50% retracement; February 5 bottom of the January/February trading range; September 1 breakout point; and, May 5 low, which was the start of the parabolic wedge.
- Most attempts to break out of a trading range fail, even when the attempt is strong.
- A double top with the February 25 or January 6 high is more likely than a successful breakout above.
- The bulls need 2 closes above the January 6 high, to convince traders that the rally is a resumption of last year’s bull trend.
- Without that, they will continue to believe that the 10-month trading range is intact and that this rally is just a bull leg in that trading range.
- Weak sell signal bad, but micro wedge at resistance. When unclear like this, usually will not go far up or down.
S&P500 Emini futures
The Monthly Emini chart
- Strong bull trend since pandemic low. Only 1 pullback (a bar that traded below the low of the prior bar), and it lasted only 1 bar (September).
- With one week remaining in May, May so far has a small bear body.
- The bulls want May to be the 4th consecutive bull bar. Since that is extreme and it would be coming late in the yearlong bull trend, it will probably not be a sign that the trend will continue straight up for many more months.
- More likely, the bulls will feel exhausted within a few bars (months), and start to take profits. Traders should expect a small pullback this summer.
- This is the 3rd leg up. There were pauses in September and January. If May has a bear body, it would be a sell signal bar for a parabolic wedge buy climax.
- It would be a higher probability sell signal bar if it closes near its low.
- Because the bull trend is extremely strong, a reversal down would probably only last 2 or 3 months before the bulls return.
- Since the yearlong rally has been so unusually strong, the correction might lead to a trading range for a year or more.
The Weekly S&P500 Emini futures chart
- I mentioned last week that there are consecutive outside bars on the Globex weekly chart, and that is an OO pattern. An OO is a Breakout Mode pattern, which typically has a 50% chance of a bull breakout, and a 50% chance of a bear breakout.
- The high of last week’s Globex OO bar is at the top of the 6-week range, and its low is at the bottom.
- On the above weekly chart of the day session, the pattern is similar. There is a 6-week trading range, which is also a Breakout Mode pattern.
- This week was an inside bar. It is a High 1 buy signal bar for next week. Since it was a perfect doji bar, it is not a strong High 1 bull flag buy signal bar for next week. This makes a strong rally next week less likely.
- Since it is an inside bar after a reversal down, it is also a Low 1 sell signal bar.
- A doji in a tight trading range in a Small Pullback Bull Trend is a low probability sell signal.
Late in Small Pullback Bull Trend
- The Small Pullback Bull Trend has lasted more than 60 bars, which is unusual and therefore will probably not continue much longer.
- Since there is no reliable top yet, traders expect higher prices.
- When a Small Pullback Bull Trend ends, it usually does not immediately reverse into a bear trend. A strong bull trend typically transitions into a trading range, before the bears can get a trend reversal.
- Once there is a correction, traders will expect it to last longer, and fall more than any prior pullback in the trend.
- The biggest correction so far was a 10% drop that lasted for 2 months (September and October). Therefore, once this Small Pullback Bull Trend ends, there should be a pullback that falls 10 to 20%, and it should last at least a couple months.
- It could last many months. For example, the Emini went sideways for 2 years after the 2017 buy climax.
- Once there is a trading range, it will have both buy and sell setups, as all trading ranges do.
- If the trading range has a reasonably good sell setup, the bears will have a 40% chance of a reversal into a bear trend.
The Daily S&P500 Emini futures chart
- Trading range for 6 weeks within yearlong bull trend. Most attempts to break out of a trading range fail, and the trading range can last longer than what seems likely.
- Traders are looking for a measured move up to 4,400 or down to 3,850, based on the 200-point tall trading range.
- Reversed up on Wednesday from a double bottom with last week’s low. This week formed a higher low, which is bullish.
- The consecutive big bull bars this week are also bullish.
- The bulls on Friday got a breakout above the May 14 high, which is the neckline of the double bottom, but Friday closed near the low of the day, and below the breakout point.
- Friday is a sell signal bar for a higher high double top with the May 14 high.
- The daily chart now has both a double top, and a double bottom since the May 12 low. That is a Breakout Mode pattern, and it is within the 6-week trading range, which is a bigger Breakout Mode pattern.
- A Breakout Mode pattern means that the probability of a successful bull breakout, is about the same as for a successful bear breakout.
- In this case, the probability is slightly higher for the bulls: the chart has been in a bull trend for a year; Friday has a smaller bear body than the bodies of the consecutive bull bars of the prior 2 days; and, last week reversed down from above the month-long trading range, but then reversed up from below, and a 2nd reversal is more reliable.
- Summary: 6-week trading range is Breakout Mode, as is the double top following the double bottom of the past 2 weeks. The probability of a bull breakout is slightly higher than for a bear breakout.
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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.