The monthly S&P500 Emini candle chart is in a strong bull trend but overbought
I have talked over several weeks about how the monthly S&P500 Emini chart has only been this overbought 3 times in the past 20 years. Each time led to a reversal of at least 20%. The monthly Emini chart is in a small pullback bull trend. Since this is the strongest type of trend, the first reversal will probably only last a few bars and then create a bull flag. However, 3 monthly candles is 3 month, which could be a 100 – 200 point sell off and bear trend on the daily chart.
The weekly S&P500 Emini candle chart triggered a sell signal this week
By falling below last week’s low, this week’s candle became the entry bar for a short. This is a failed breakout above the July high. It is also a low 4 short in a bull channel, and it is near the top of the channel. If this leads to a correction, the selling will probably last at least ten bars and have at least two legs. The bears need a strong breakout before traders will agree that a correction is underway.
The daily S&P500 Emini candle chart is in breakout mode
The Emini as been in a tight trading range for three weeks. The bulls see this price action as a bull flag. The bears see is as a large higher high major trend reversal. As more bars get added to the trading range, the advantage that the bulls now have will melt away and the chance of the downside breakout will equal that of the bull breakout.
The FOMC announcement comes on Wednesday and it could be the excuse that the market needs to break out of the trading range. If the Emini breaks to the upside, it could rally up for a measured move. This would take it up to the top of the channel on the weekly chart. Because the Emini is so overbought on the monthly chart, the odds are that the bull breakout would fail and that the trading range would then be a final flag. If there is a bear breakout, whether or not there is a bull breakout, the first target would be the August low, around 1900.