Monthly S&P500 Emini futures candlestick chart:
Small bull bar testing the January high
The monthly S&P500 Emini futures candlestick chart is in a strong bull trend. It rallied for 15 months without a pullback. That is a 15 bar bull micro channel and a sign of strong bulls. However, it was also unsustainable and therefore climactic. When a micro channel lasts more than 10 bars and is therefore also a buy climax, it typically leads to a bull flag and not a bear trend.
But, the bull flag can last 10 or more bars. The Emini is currently deciding if the bull trend is resuming or testing the top of a developing trading range. If this month closes near its high, especially if the range gets bigger, the odds are that there will be a new all-time high within a couple months.
However, if it closes below its midpoint, it will be a sell signal bar for July. Furthermore, if it closes on its low and has a big bear body, the odds will favor at least a month or two of lower prices this summer.
Weekly S&P500 Emini futures candlestick chart:
Emini wedge rally and double top in 5 month trading range
The weekly S&P500 Emini futures candlestick chart is in a 5 month trading range after last year’s bull trend. It is therefore in Breakout Mode, but in a bull trend. At the moment, there is a 60% chance that the bull trend will resume before there is a a strong bear breakout on the weekly chart. Yet, the 3 month rally has not been strong. It is a wedge rally and it lacks consecutive big bull bars. It therefore looks more like a bull leg in the 5 month trading range than a resumption of the bull trend.
Unless the bulls get a strong break above the March lower high, the bears will create another leg down. That leg would have a 50% chance of retracing at least 50% of the 3 month rally. In addition, if it was strong, it would have a 40% chance of falling below the April 2nd low and continuing down for 300 points. That is the measured move target for the double top with the March 13 high.
Daily S&P500 Emini futures candlestick chart:
Emini wedge rally stalling at top of 5 month trading range
The daily S&P500 Emini futures candlestick chart has been going up since the April 2 low. This week tested down to the May 22 high and reversed up without overlapping it. There is now a possible measuring gap for about a 170 point rally [see comments below].
But, the chart is in a trading range. It is more likely that the bulls and bears will both be disappointed repeatedly. Therefore, the daily chart will probably close the gap above the May 22 high next week.
In a trading range, reversals are more common that breakouts. Hence, most breakout attempts up and down fail. Consequently, predicting which leg will ultimately be the start of the next trend is making a low probability bet.
3 week bull flag or start of bear trend?
Is the 3 month rally a resumption of last year’s bull trend or simply another leg in the 5 month trading range? Since it is not particularly strong, it is more likely a leg in the trading range. Traders will find out over the next several weeks.
If the bulls are unable to break strongly above the March high, they will sell out of their longs. They will then likely not look to buy again until the Emini is at least back to the middle of the 5 month range. This means that there would probably be a 1 – 2 month selloff.
The Emini has reversed down over the past 2 weeks. At the moment, there is a 50% chance that this is the start of a 1 – 3 month swing down to the middle of the range. Furthermore, any trading range always has at least a 40% chance of a breakout below the bottom of its range.