E-Mini Breaks Out of Inside-Outside-Inside Pattern

05/22/2023

4 minutes read

2023.05.22 10:45

Al Brooks

Market Overview: S&P 500 Emini Futures

The bulls got a breakout above ioi (inside-outside-inside) pattern this week. They need to create follow-through buying next week, breaking far above the February 2 high to increase the odds of higher prices. The bears want a reversal down from a failed breakout above the February 2 high and a larger wedge pattern (Dec 13, Feb 2, and May 19).

S&P 500 Emini futures

The Weekly S&P 500 Emini chart

Emini Weekly BO Above ioi

This week’s Emini candlestick was a big bull bar with a noticeable tail above.
Last week, we said that the odds continue to favor the market to still be in the sideways to up phase until the bears can create credible selling pressure.
This week broke above the ioi (inside-outside-inside) pattern and the 6-week tight trading range. It closed above May 1 high but below the February 2 high.
The bulls want another strong leg up completing the wedge pattern with the first two legs being December 13 and February 2. The third leg up is currently underway.
They hope the prior 6 candlesticks formed a bull flag around the trading range high.
They want a reversal up from a double bottom bull flag (Apr 26 and May 4) and a breakout far above February 2 high followed by a measured move up using the height of the 5-month trading range which will take them to the March 2022 high area.
Since this week was a breakout above the ioi (inside-outside-inside) pattern and the 6-week tight trading range, the bulls will need to create a follow-through bull bar next week to increase the odds of higher prices.
The next target for the bulls is the August 2022 high.
The bears want a reversal down from a failed breakout above the February 2 high and a larger wedge pattern (Dec 13, Feb 2, and May 19).
They hope that the 6-week tight trading range is the final flag of the move up and want a reversal back into the middle of the trading range.
The problem with the bear’s case is that they have not been able to create credible selling pressure since the March low.
They will need to create strong bear bars with follow-through selling to convince traders that a deeper pullback could be underway.
At the very least, the bears will need a strong reversal bar or a micro double top before they would be willing to sell more aggressively.
The pullback in April and May went sideways. The bears are not yet strong.
Since this week was a bull bar closing in the upper half, it is a buy signal bar for next week. It is not a strong sell signal bar.
However, the market is trading around the yearlong trading range high. Buying at the top of a trading range (before a confirmed breakout with follow-through buying) is not an ideal setup.
For now, odds continue to favor the market to still be in the sideways to up phase until the bears can create credible selling pressure (consecutive big bear bars closing near their lows).
Traders will see if the bulls can create a follow-through bull bar closing far above the February 2 high or will the Emini trade slightly higher but close with a long tail above or a bear body.

The Daily S&P 500 Emini chart

Daily S&P 500 Emini Chart

The Emini continued sideways early in the week followed by a breakout above the 6-week tight trading range on Thursday. Friday traded higher but reversed to close as a small bear doji with prominent tails.
Last week, we said that the odds continue to slightly favor the market to still be in the sideways to up phase until the bears can create strong consecutive bear bars.
The bulls got a breakout above February 2 high but did not follow-through buying on Friday.
They see the recent sideways pullback as forming a double-bottom bull flag (Apr 26 and May 4) and a wedge bull flag (Apr 6, Apr 26, and May 4).
They want a strong leg up and a measured move using the height of the 5-month trading range which will take them near the March 2022 high.
The bulls will need to break far above the February 2 high with follow-through buying to increase the odds of higher prices.
Since April 18, the market formed 2 prominent legs down (a sideways pullback) around the 20-day exponential moving average.
The bears have not yet been able to create sustained follow-through selling.
They see the move up from October 2022 simply as forming a large wedge (Dec 13, Feb 2, and May 19) within a broad bear channel.
The bears hope that the 6-week tight trading range is the final flag of the move up.
They want a failed breakout above the February 2 high and the market to trade back into the middle of the trading range.
They need a strong reversal bar or a micro double top before they would be willing to sell more aggressively.
Since Friday was a small bear doji with prominent tails, it is not a strong sell signal bar for Monday.
It also followed 2 strong bull bars breaking out from a tight trading range (May 8 to May 16). The first pullback may only be minor.
For now, the odds continue to slightly favor the market to still be in the sideways to up phase until the bears can create strong bear bars.
Traders will see if the bulls can create a sustained breakout above February 2 high or will the market trade slightly higher but fail around the trading range high.