Monthly S&P500 Emini futures candlestick chart: Double top after buy climax
The monthly S&P500 Emini futures candlestick chart has a lot of price action left to the month and it is too early to speculate how the month will end. This is a chance to learn how to trade the markets for a living when more trading range price action is likely. The 38 month buy climax was extreme, and that increases the chances that the pullback from the top will be bigger than just the 14% that we saw at the September low. The bull trend line is rising quickly and is close enough so that the chart is within its magnetic field. At some point, the low of a bar can get so close that the chart can no longer resist the pull. Then, the Emini falls to the trend line.
It can reverse up from just above or below it, or it can break strongly below it. If it breaks below it, the next support is the March 2000 high of 1610.75. That formed a double top with the 2007 high, and the strong bull breakout of 2013 has yet to test the breakout point. Below that is a measured move target around 1500, based on the height of the double top. At the moment, there is about a 55% chance of a test of the bear trend line before a new all-time high, and about a 30% chance of a selloff down to the 1500 measured move target.
Weekly S&P500 Emini futures candlestick chart: Those who trade the markets for a living believe more trading range likely
The weekly S&P500 Emini futures candlestick chart reversed up 3 weeks ago from a small breakout below last year’s low. The two big bear trend bars in January made it likely that the reversal up would be sold. If the bulls can hold the Emini above the January low, they might be able to test the moving average and then the all-time high. At the moment, the bounce is more likely a bear flag that will be followed by a breakout below the January low, or at least a test down to near that low.
The January breakout below last year’s low was small and it reversed up sharply. This is not how strong breakouts typically behave, and it reduces the chances that the breakout will ultimately succeed. At the moment, there is about a 55% chance that the Emini will breakout again to a new low. If it does, it might then break below the August 2014 low. The bears will then look for a measured move down of about 300 points, based on the height of the trading range. Because the reversal up and follow-through 2 weeks ago were strong, the Emini might have to go sideways for a few more bars (weeks) before it begins its next move up or down.
Daily S&P500 Emini futures candlestick chart: Bear rally failed at a 50% pullback
The daily S&P500 Emini futures candlestick chart had an extreme selloff below the August bear trend low. The Emini fell in a parabolic wedge. When there is an extreme sell climax like that, there is a 70% chance of at least a TBTL Ten Bar Two Leg rally. The rally up to this week’s high had two legs, but the channel up was tight. When that is the case, the two legged rally is more often just the 1st leg up in a more complex correction. The odds still favor one more leg up after the current selloff ends.
This week’s rally reversed down sharply after going only a couple of ticks above the 50% retracement level from the January selloff. When a market reverses down after only a brief test of major resistance, the odds are that there will be another test. This means that, despite the two strong selloffs this week, the odds still favor at least one more test of the 1940 level. The selloff tested the January 27 micro double bottom, and Friday might have formed a micro double bottom with Wednesday’s low. That is now 4 tests of the 1865 area, which so far is being support. It does not matter if the Emini reverses up from here or 1st breaks below this 2 week ledge and then reverses up. The odds of a test up are still 60%.
There is a 40% chance that this week’s high was simply the 2nd leg up of a double top bear flag, where January 13 was the 1st of the two tops. If so, the Emini might sell off relentlessly below the January bear trend low and then fall for a measured move. Since the double top bear flag is about 130 points tall, the target would be around 1680, which is below the monthly bull trend line.
In this article，you said：“When a market reverses down after only a brief test of major resistance, the odds are that there will be another test.”
Can you explain the reason behind this?
Most reversals, including Head and Shoulders patterns and Major Trend Reversals, contain a test (double top or bottom), and some have a 2nd test. It is unusual for a mkt to hit a key price, spend very little time there, and go to the other extreme. This leaves traders wondering if there has been enough of a test. Bears are hesitant to hold onto shorts because they know the math favor a retest. Bulls are willing to buy selloffs, confident that the probability favors a test up. It is a self-fulfilling concept. Everyone expects it, and they trade with that expectation in mind, and the result is that it usually happens.
Odds are we test 1940 next week, even if we sell off a little more 1st. Less likely, the double top is already in control and the market just falls below the January low.
How about this argument:
It’s because the bears are much stronger than bulls in the major resistance that mkt reversed down after only a brief test. So mkt probably never came back to test it— the bears’ advantage is too great.
Do you think it’s reasonable?
Unfortunately I can’t advise you on where the markets WILL go next !
I know your disappointed now.
But in all seriousness, I’m going to have to step out of price action to deliver my point.
The monthly chart has had quite a run and never before had we had the world in such a mess both in a macro sense and in a commodity sense.
The big players are buying gold the gold price is rising, the indicies are struggling so it makes sense for the markets to follow the worst case scenario down as you’ve outlined.
Of course I will not be taking trades based on what I just mentioned BUT one step before price actions are markets drivers and the one presenting lately are quite compelling.
As in a previous post I mentioned selling all rallies and so far that has been the case, so it tends to back up my macro view theory.
Does it make sense for the markets to recover and make new highs and keep going into ES 2400 this year, I for one think not. it’s a game of whats most likely to happen. Looks to me we are in a balancing mode back to value what ever that number is, the market participants will determine that.
My only thought is that the institutions already knows everything that you said, yet the market is going sideways and not down. This tells me that the institutions are deciding whether those factors are already sufficiently factored in yet.
There are two things that make me believe that they are not. First, the market has gone a long time on the monthly chart without testing the breakout point of the bull trend line so regression to the mean is becoming important.
Second, I have made the point countless times for more than a year that the market has only been this overbought twice in the past 50 years. The other times were followed by corrections of 22% and 36%. We have only corrected 14% so far. The sample size is small, but the current pullback is relatively small compared to the sample. This increases the chances that there is much more to go.
Its a real mess out there.
The rallies are made up primarily of short taking profits and not bulls taking fresh hold positions.