Even though this is called a Sunday update, I finished it early and posted after Friday’s close.
The Emini reversed up from the moving average, but there was a weak entry bar on weekly candle chart this past week, and it followed a weak signal bar the week before. This increases the chances of more of a sideways to down pullback. The Emini should hit the bottom of the channel by either going sideways or down.
Because the Emini is at the top of the channel and it is overbought, it will probably correct for a few candles, which means a few months. There are several signs that it is overbought. Most obviously, it is at the top of a channel. It also has been above the moving average for 28 months, which is very unusual. Finally, the July low is further from the moving average than it has been since 2009 and 2003, and both of those times were followed by big reversals. However, the Emini is currently in a small pullback bull trend, and reversal attempts in that type of environment are usually limited to a few bars.
A pullback might generate enough selling pressure so that the market might then correct more, but the downside over the next few months is probably limited to 100 – 200 points and maybe a test of the moving average. Since the moving average is rising, if the Emini falls that amount over the next several months, it might touch the moving average.