E-Mini Forms ‘Inside-Outside-Inside’ Pattern

2023.05.15 09:49

Market Overview: S&P 500 Emini Futures

The futures formed an Emini ioi pattern (inside-outside-inside) on the weekly chart, which means the market is in a breakout mode. However, the market is also in a 6-week tight trading range and the Emini is currently trading around the middle of it which is an area of balance.

S&P500 Emini futures

The Weekly S&P 500 Emini chart

Weekly S&P 500 Emini Chart

• This week’s Emini candlestick was an inside bar with a prominent tail below.
• Last week, we said that the odds slightly favor the Emini to still be in the sideways to up phase until the bears can create credible selling pressure.
• The candlestick after an outside bar sometimes is an inside bar forming an ioi (inside-outside-inside) pattern, or often, has a lot of overlapping price action. This was the case this week.
• This week was trading sideways within a small range around the 6-week trading range.
• 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 last 6 candlesticks are forming a bull flag near 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.
• The next targets for the bulls are the February 2 high and the August 2022 high.
• The bears want a reversal down from a double top with February 2 high and a larger wedge pattern (Dec 13, Feb 2, May 1).
• If the Emini trades higher, they hope that the 6-week trading range is the final flag of the move up and want a reversal back into 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 sell signal bar before they would be willing to sell more aggressively.
• So far, the pullback in the Emini has gone sideways. The bears are not yet strong.
• The bears need to create consecutive bear bars closing near their lows to increase the odds of lower prices.
• Emini ioi pattern formed (inside-outside-inside), which is a breakout mode pattern. The bulls want a breakout above while the bears want a breakout below this week’s range.
• Because this week is a small bear bar with a prominent tail below, it is a weaker sell signal bar.
• The first breakout from an ioi (inside-outside-inside) pattern can fail 50% of the time.
• The Emini is trading near the middle of a 6-week tight trading range. It is an area of balance. Poor follow-through and reversals are common within a trading range.
• 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).

The Daily S&P 500 Emini chart

Daily S&P 500 Emini Chart

• The Emini was trading sideways for the week and formed 4 doji bars with prominent tails. Friday was a bear bar with a long tail below.
• Previously, we said that the odds slightly favor the Emini to trade at least a little higher early next week. The Emini is forming a smaller trading range of 4190 and 4050 and traders will BLSH (Buy Low, Sell High) until there is a breakout from either direction with follow-through buying/selling.
• This week, the market traded sideways around the middle of the trading range, which is an area of balance.
• 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 1) within a broad bear channel.
• They want a reversal down from a lower high major trend reversal or a double top (Feb 2) and a smaller wedge (Apr 4, Apr 18, and May 1).
• The bears hope the Emini will continue to stall around the trading range high and start the bear leg lower soon.
• If the Emini trades higher, the bears hope that the 6-week trading range is the final flag of the move up and want a failed breakout back into the trading range.
• The bulls want a retest of the February 2 high followed by a breakout and a measured move up using the height of the 5-month trading range which will take them near the March 2022 high.
• They see the current 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).
• Since Friday was a bear bar with a long tail below, it is a weak sell signal bar for Monday.
• The Emini is trading around the middle of the 6-week trading range around the 20-day exponential moving average. It is in an area of balance between the bulls and bears.
• The market is forming a tight trading range of 4190 and 4050 around the February 2 high.
• Poor follow-through and reversals are common within a trading range.
• Traders will BLSH (Buy Low, Sell High) until there is a breakout from either direction with follow-through buying/selling.
• For now, the odds continue to slightly favor the market to still be in the sideways to up phase until the bears can create consecutive strong bear bars.

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