Monthly S&P500 Emini futures candlestick chart:
6 month rally to new all-time high
The monthly S&P500 Emini futures candlestick chart is having strong trend resumption up after the February selloff and then 2 sideways months. Because 2017 was so climactic, the current rally will probably stall within a few months from a 2nd exhaustion. The measured move projection based on the height of the February pullback is 3234.00 (see weekly chart). Their are other lower targets as well.
Since the 6 month rally is strong, the bulls will buy the 1st pullback. Consequently, the downside risk over the next couple of months is small.
Weekly S&P500 Emini futures candlestick chart:
Small Pullback Bull Trend at all-time high
The weekly S&P500 Emini futures candlestick chart has been rallying in a tight bull channel since the April double bottom with the February low. While last week was a sell signal bar for a failed breakout above the January high, any reversal was likely to be minor.
This is because the 6 month rally is a Small Pullback Bull Trend. That is a strong bull trend and reversals typically only last 1 – 3 bars. The bears usually need a strong minor reversal down and then some type of a double top before they can create a trend down.
Because last week was a bear bar, it was a weak buy signal bar for this week. That increases the chances that there will be more sellers than buyers above its high. If so, next week could reverse down. That would form a micro double top, as well as a higher high double top with the January high. Traders would then look for a 1 – 3 week pullback.
1st trend reversal down will likely be minor
If next week reverses down, it will form a micro double top with the high from 2 weeks ago. The bears would then have a 40% chance of a test down. A reasonable target is the 20 week EMA, which is just above 2800.
But, because the 6 month bull channel is tight, the bulls will buy the selloff. Their buying would likely lead to another all-time high. The odds favor a test of the measured move targets around 3100 and 3200 over the next several months (see the chart).
Daily S&P500 Emini futures candlestick chart:
Emini possible minor trend reversal at August high
The daily S&P500 Emini futures candlestick chart has been in a bull channel since the April low. But, the 5 day rally has been weak. Since Friday has a bear body, it is a sell signal bar for Monday. The big tail at the bottom of the bar lowers the probability of a selloff. The bears will probably need a better sell signal bar next week before traders will sell.
The bears want a lower high major trend reversal (compared to the August high). Since the 6 month bull channel is tight, any reversal here will probably be minor. However, a minor reversal could last several weeks and fall to support at around 2800.
Since the Emini gapped up on Thursday, a gap down next week would create an island top. If next week did not gap down but simply closed the gap, the gap would be an exhaustion gap. Island tops, island bottoms, and exhaustion gaps are minor reversal patterns. But, a minor reversal could still last several weeks.
The importance of a major higher low
The bears need a strong reversal down to below the bottom of the bull trend channel. More importantly, they need a break below the most recent major higher low. The is the June 28 low of 2698.50. While the August 2 low of 2800.00 is important, it came after just a couple medium size bear bars in a tight bull channel. It is therefore minor. That means that a selloff to below its low would not end the bull trend.
If the bears break below the June 28 major higher low, the bull trend will have ended. The chart would then be either in a trading range or a bear trend. Until then, it is in either a trading range or a bull trend.
Hi Al, can you further explain why you wouldn’t consider the August 2 low as a major higher low despite the earlier medium sized bear bars? I see that a BO to a new a high followed and the DB with the August 15 low was an adequate test before the BO. Thanks in advance!
One way to decide is to ask yourself if you believe that the bull trend would have ended if the Emini falls below that low. Most traders would say that they would need more. Therefore, it is not a major low. However, it is an important low. If the Emini fell below it, the chart would be in a Big Up, Big Down pattern. A trading range for 20 or more bars would then be likely. But, the odds would still favor a resumption of the bull trend.
However, if the Emini fell far below that low with many big bear bars, traders would see that as a strong minor reversal down and possibly a bear trend. They then would sell the 1st rally, expecting at least one more leg down or a bear trend.
Al, as always, thank you for you in-depth analysts and continued teaching. But I’m confused. You say Friday is a sell signal bar. It closed above the mid point. What am I missing?
You are right that its close is above the midpoint. The issue here is context. Because the rally looks like a bull leg in a trading range, the odds favor a bear leg.
Signal bars in trading ranges often look bad. Most traders won’t sell below Friday, but if Monday closes on its low, traders will sell below its low. If Monday’s high is also below Friday’s high, the bear leg would than have begun on Friday, and the move down would have begun when Monday traded below Friday’s low.