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E-mini Bull Microchannel

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Market Overview: S&P 500 E-mini Futures

The market formed a 5-bar S&P 500 E-mini bull microchannel on the monthly chart. The bulls want the broad bull channel to resume and expect at least a small second leg sideways to up after any pullback. The bears want a reversal from a higher high major trend reversal and a double top (Dec 6 and Aug 28).

S&P500 E-mini futures

The Monthly E-mini chart

Emini Monthly - Follow-through Buying Following Breakout, E-mini Bull Microchannel
  • The August monthly E-mini candlestick was a bull bar closing in its upper half with prominent tails.
  • Last month, we said traders would see if the bears could create strong bear bars to show they are back in control, or if the pullback would lack follow-through selling, forming a long tail or a bull body in August instead.
  • The market gapped down and traded lower early in the month, but lacked follow-through selling. The E-mini then traded sideways to up for the month.
  • The bulls created a breakout above the prior all-time high (Dec 6) in July with follow-through buying in August.
  • They want the broad bull channel to resume.
  • The move up (from Apr 7 low) is in the form of a 5-bar bull microchannel. That means persistent buying.
  • The bulls expect at least a small second leg sideways to up after any pullback.
  • The bears see the current move as a buy vacuum retest of the prior all-time high (Dec 6).
  • They want a reversal from a higher high major trend reversal and a double top (Dec 6 and Aug 28).
  • They want a failed breakout above the December 6 high.
  • The bears must create strong bear bars to show they are back in control.
  • So far, the move up from the April 7 low is strong, in the form of a 5-bar bull microchannel and consecutive bull bars closing near their highs.
  • The market is Always In Long.
  • The move covered over 33% from low to high (Apr 7 to Aug 28) in 5 months without any significant pullback.
  • While the move is strong, it is slightly climactic and overbought. The market may need to form a pullback to alleviate the overbought condition before the trend resumes.
  • Traders will only be willing to sell aggressively when they see that the bears can create strong bear bars with sustained follow-through selling.
  • The 5-bar bull microchannel increases the odds that the first pullback may be minor, followed by a retest of the recent leg extreme high (now Aug 28).
  • For now, traders will see if the bull can create more follow-through buying.
  • Or will the bears be able to create some decent selling pressure (bear bars), something they haven’t been able to do since the April low, instead?

The Weekly S&P 500 E-mini chart

E-mini Weekly - Wedge, Embedded Wedge
  • This week’s E-mini candlestick was a doji bar closing in its lower half with a long tail above.
  • Last week, we said the market could still trade slightly higher. Traders would see if the bulls could create follow-through buying above the July 31 high, or if the market would trade slightly higher but stall instead.
  • The market reached a new all-time high but reversed to close below the prior two candlesticks’ highs.
  • The bulls view the recent moves (Aug 1 and Aug 20) as pullbacks and want a resumption of the bull trend.
  • They want a Leg 1 = Leg 2 move, which will take the market to the 6800 area (Leg 1 being the Apr 21 low to the May 19 high).
  • They want another strong leg up from a wedge bull flag (Jul 16, Aug 1, and Aug 20) or a double bottom bull flag (Aug 1 and Aug 20).
  • They must create follow-through buying above the July 31 high to increase the odds of a measured move.
  • If the market trades lower, they want the bull trend line or August 1 low to act as support.
  • The bears want a reversal from a higher high major trend reversal and a wedge pattern (May 19, Jul 3, and Aug 28).
  • They see the current leg forming an embedded wedge (Jul 3, Jul 31, and Aug 28).
  • They want a TBTL (Ten Bars, Two Legs) pullback lasting a few weeks.
  • They hope that the recent sideways trading range (starting early July) will be the final flag of the move.
  • The problem with the bear’s case is that they could not create sustained follow-through selling on the weekly chart since the April 7 low.
  • They must create consecutive bear bars closing near their lows to show they are back in control.
  • The move up since the April 21 low is in a tight bull channel, indicating strong bullish momentum.
  • The buying pressure is stronger (bull bars with follow-through buying) compared to weaker selling pressure (bear bars with no follow-through selling).
  • The market has been stalling around the 6500 level for the last 3 weeks.
  • The move is slightly climactic and overbought. The market may need to form a pullback before resuming the trend.
  • The wedge and embedded wedge increase the odds of a minor pullback.
  • The bears need to do more by creating strong consecutive bear bars to show they are back in control. Without that, traders will not be willing to sell aggressively.
  • For now, traders will see if the bears can create strong bear bars with follow-through selling to start the pullback phase.
  • Or will the market continue to trade higher, lacking follow-through selling strength, as has been the case since the April low?

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