S&P 500 E-Mini: Bears Follow Through On Weekly Chart

2022.05.23 16:31

E-mini bears follow through on the S&P 500 E-mini futures weekly chart. There are 7 consecutive bear bars on the weekly chart, something that has not happened since February 2001. It increases the odds of a bull bar within the next 1 to 3 weeks.

The sell-off has been in a tight bear channel since March. That means strong bears. Odds are, a 2 legged sideways to up pullback (bounce) would be minor.

S&P 500 E-mini futures

S&P 500 E-Mini Weekly Chart

• This week’s E-mini candlestick was an outside bear bar with prominent tails above and below.
• Last week, we said that the E-mini may need to trade sideways for another week or two before traders are willing to bet aggressively on a breakout below or a reversal higher. Odds slightly favor a sideways to up pullback to begin anytime soon.
• This week traded above last week’s bar but reversed to trade below it. A strong reversal in the final hour on Friday pushed the close above last week’s low.
• The bears got the follow-through bar that they wanted confirming the breakout below the 10-month trading range.
• Bears want a measured move down towards 3600 based on the height of the 10-month trading range. They want an endless small pullback bear trend.
• 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.
• 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.
• There are 7 consecutive bear bars in the current leg down, something that has not happened since February 2001. It increases the odds that we will get a bull bar within the next 1 to 3 weeks.
• Since this week was a bear bar, it is a sell signal bar for next week. The prominent tail below makes it a weaker sell signal bar.
• The sell-off since March is in a tight bear channel down. Odds continue to favor sideways to down.
• The bulls will need a strong reversal bar or a micro double bottom before they would be willing to buy aggressively. If next week trades below this week’s candlestick low but reverses higher, there will then be a micro wedge pattern.
• However, because of the 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.

Comments From Al Brooks

“The E-mini collapsed on Friday to below a 20% correction from the all-time high. Many stock market investors build up cash from their businesses or elsewhere and then wait for 10%, 20%, and 30% corrections. There were enough buyers to create a midday bull trend reversal. However, the 1st time a market breaks through major support or resistance, it often reverses.

In this case, everyone was looking for a 20% selloff, and therefore there were no buyers just above. Why buy above when you are confident you can soon buy lower? That absence of buyers just above support creates a vacuum down to support. On Friday, it was in the form of a very strong Small Pullback Bear Trend. Many bears took profits, and many bulls went long.

What often happens is that the attempt to reverse soon fails and then there is a successful breakout. It could come in a few days or in a few weeks.

It is important to note that this week was the 7th consecutive bear bar on the weekly chart. Streaks eventually end and therefore are unsustainable and a form of a climax. A 7-week streak has not happened in 21 years. That 2001 streak lasted 8 weeks, and then the E-mini reversed up for a couple of months. This was followed by another new low. No two times are ever identical. However, traders should expect a bounce soon and then an attempt at another low.

While it is possible the selloff could reach the pre-pandemic high just above 3300, which is a 38% correction, it should end before then. In January, I said the E-mini should sell-off in the 1st half of the year, and the selloff could be 20% and possibly reach 3700. I also said it should rally in the 2nd half. I still believe that my January comments are accurate.”

SP&500 E-Mini Daily Chart

• The E-mini traded higher early in the week testing close to the 20-day exponential moving average on Tuesday but did not reach it. It was followed by a sharp sell-off on Wednesday and a breakout and reversal on Friday.
• Last week, we said that the bulls will need to create follow-through buying early in the week to convince traders that a 2 legged sideways to up pullback is beginning.
• However, the sell-off since March 29 was strong enough for traders to expect at least a small second leg sideways to down after a pullback (bounce).
• This week traded above last week’s high but there was no follow-through buying, and the bears got the second leg sideways to down by Friday.
• The bulls want a reversal higher from a wedge bull flag (Jan 24, Feb 24, and May 20) with an embedded parabolic wedge (April 26, May 2, and May 12) and a lower low major trend reversal.
• They have a micro double bottom (May 12 and May 20) and a reversal bar on Friday.
• They want the breakout below the 9-month trading range to fail and a reversal back into the middle of the trading range around 4400.
• The bears want a measured move down to around 3600 based on the height of the 9-month trading range. They want a small pullback bear trend down.
• The channel down from March 29 has been tight. That means strong bears.
• Bears saw the pullback (bounce) earlier in the week as a test of the breakout point, which is the February low. The bulls failed to reach the breakout point; it could potentially be a measuring gap.
• A measured move will take them down to slightly below 3600.
• Friday was a reversal bar with a bear body closing in the upper half of the range. It is a buy signal bar for Monday.
• The bulls will need to create consecutive bull bars closing near the highs to convince traders that a 2-legged sideways to up pullback is underway.
• Otherwise, if the bounce is more sideways and stalls around the 20-day exponential moving average or May 17 high, bears will likely return to sell the double top bear flag.

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