Market Overview: S&P 500 Emini Futures
The S&P 500 Emini futures May candlestick closed as a doji bar, a possible failed breakout. The bears failed to get a follow-through bear bar. Bulls see the move down from the January high as a 2-legged pullback and a wedge bull flag (January 24, February 24 and May 20). Bulls will need to close June as a strong bull bar near the high to increase odds of a possible failed breakout below the trading range.
S&P500 Emini futures
The Monthly Emini chart
- The May monthly Emini candlestick was almost a perfect doji bar closing above the February trading range low.
- Last month, we said that odds slightly favor May to trade at least slightly lower and that traders will be monitoring whether May closes as a bear follow-through bar, or reverses up from a failed breakout below the trading range low, to close as a bull bar.
- We have said that the bears will need a bear follow-through bar in May to convince traders that a deeper sell-off may be underway.
- May broke below the 9-month trading range low but reversed up to close at the upper half of the month’s range instead. The bears failed to create bear follow-through bar.
- The bears see the move down in May as the second leg down from the January top. They want a measured move down to 3600 based on the height of the 9-month trading range height.
- Bulls want the breakout below the trading range low to fail and reverse back up. The bull’s case of a failed breakout would have been stronger if they have gotten a bull bar closing near the high.
- Nonetheless, by closing above the middle of the bar, the May candlestick slightly favor the bulls. Odds slightly favor June to trade at least slightly above May.
- They see the move from the January top as a two legged pullback and a wedge bull flag (January 24, February 24 and May 20).
- The targets for the bulls are May high and the middle of the 9-month trading range around 4400.
- We have said while the Emini may test below the 9-month trading range, breakouts from a trading range have a 50% chance of failing. This remains true.
- Earlier, Al said that the February low did not quite reach the 20-month exponential moving average (EMA). Many traders would conclude that the average was not yet tested which increased the chance of the Emini going sideways to down until there is a low at least minimally below that average. That is one of the forces behind the current selloff.
- May has adequately tested the 20-month EMA.
- Al also said that the bull trend on the monthly chart has been very strong to make a bear trend on the monthly chart unlikely. This selloff should be a minor reversal on the monthly chart, which means the selloff will probably not go much below 3800 if it gets that far.
- The Emini reversed up from around 3800 in May.
- The bears would have a better chance of a bear trend on the monthly chart after a test of the all-time high. Al has said many times that the Emini should enter a trading range for about a decade within the next few years, but picking the exact high is impossible.
- It is always better to bet on at least one more new high. The trading range will probably have at least a couple of 30 – 50% corrections, like the trading ranges in the 2000s and the 1970s.
- For now, odds slightly favor a test above May high. Traders will be monitoring whether June closes as a strong bull bar above May, or a surprise bear bar closing near the low.
The Weekly S&P 500 Emini chart
- This week’s Emini candlestick was a bear doji bar with tails above and below, closing below last week’s high but above February low.
- Last week, we said that the bulls will need to create another bull follow-through bar to convince traders that a reversal higher may be underway.
- This week was a bear doji. The bulls failed to get a follow-through bar.
- The bulls want a failed breakout below the 9-month trading range.
- They see a wedge bull flag (Jan 24, Feb 24, and May 20) with an embedded parabolic wedge (April 26, May 2, and May 20) and want a reversal higher from a lower low major trend reversal.
- We have said that the selloff from March 29 has been very strong. The bulls will need at least a micro double bottom or a strong reversal bar before they would be willing to buy aggressively. Last week was the strong reversal bar up.
- They want at least a 2-legged sideways to up pullback.
- The bears want the Emini to stall at a lower high around Feb/March lows or around the 20-week exponential moving average or the bear trend line.
- They want a re-test of May low and a continuation of the measured move down to 3600.
- We have said that the sell-off since March is in a tight bear channel down. Odds are the pullback would be minor and traders expect at least a small second leg sideways to down move after a pullback because V-bottoms are not common. This remains true.
- Al said that the 7th consecutive bear bar on the weekly chart was unsustainable and was a form of a climax. A 7-week streak has not happened in 21 years. Traders should expect a bounce soon and then an attempt at another low.
- Al also said that while the selloff could reach the pre-pandemic high just above 3300, which is a 38% correction, it should end before then. In January, he said the Emini should sell off in the 1st half of the year, and the selloff could be 20% and possibly reach 3700 to be followed by a rally in the 2nd half of the year. This remains true.
- Since this week was a bear doji with a prominent tail below, it is a weaker sell signal bar for next week.
- The bears will try to trigger the low 1 sell signal bar by trading below this week’s low.
- Traders will be monitoring whether next week closes as a bear bar near the low or reverses higher and close near the high with a long tail below.
- If next week closes as a bear bar near the low, odds of a re-test of May low increases.
- Can next week trade higher without triggering the low 1? Yes, it is possible. The Emini should still be in the 2-legged sideways to up pullback phase, with the big bull spike last week as the first leg.
Traders can see the end of the day bar-by-bar price action report by signing up for free at BrooksPriceAction.com. Al talks about the detailed Emini price action real-time throughout the day in the BrooksPriceAction.com trading room. We offer a 2 day free trial.
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