S&P 500 E-Mini Forms a Wedge: What Lies Ahead?

2023.10.30 09:17

Market Overview: S&P 500 Emini Futures

The weekly chart formed the third leg down, an Wedge. The market also broke below the trend channel line. The bulls want a reversal up from a wedge bull flag. However, they will need a strong reversal bar or a micro double bottom before they would be willing to buy aggressively. The bears want a test of the 200-day moving average.

S&P 500 Emini FuturesS&P 500 Emini-Weekly Chart

• This week’s Emini candlestick was a consecutive bear bar closing near its low.
• Last week, we said that the odds slightly favor the market to trade at least a little lower and for the third leg down forming the wedge pattern. Traders will see if the bears can get a strong bear bar trading far below the October 3 low, or will the market trades slightly lower, but closes with a long tail or a bull body.
• This week, the bears got follow-through selling closing far from the October 3 low.
• They got another leg down forming the wedge pattern (Aug 18, Oct 3, and Oct 27). 
• They want a strong breakout below the bull trend line with follow-through selling.
• If they continue to get a couple of consecutive bear bars closing near their lows, it will increase the odds of the reversal down from a lower high major trend reversal becoming successful.
• The next target for the bears is the 200-day moving average. It is close enough to be tested soon.
• The sell-off in 2022 ended after a test of the 200-day moving average.
• The bulls see the move down (from July 27) as a deep pullback of the move whole move up which started in October 2022.
• They want a reversal from a wedge bull flag (Aug 18, Oct 3, and Oct 27) and a trend channel line overshoot.
• The problem with the bull’s case is that the move down is quite strong, with stronger bear bars and the bull bars not getting sustained follow-through buying.
• The bulls will need a strong reversal bar or a micro double bottom before they would be willing to buy aggressively.
• Since this week’s candlestick is a bear bar closing near its low, it is a sell signal bar for next week.
• The market may gap down on Monday. Small gaps usually close early.
• Odds continue to slightly favor the market to trade at least a little lower.
• Traders will see if the bears can get another strong bear bar, or will the market trades slightly lower, but closes with a long tail or a bull body.
• While the market may still trade sideways to down for a couple more weeks, the bull trend remains intact; higher highs, higher lows.

S&P 500 Emini-Daily Chart

• The Emini traded slightly higher earlier in the week but sold off from Wednesday into Friday, forming 3 consecutive bear bars.
• Last week, we said that the odds slightly favor the market to trade at least a little lower. Traders will see if the bears can create sustained follow-through selling or will the market trade slightly lower but stall not far away from the October 3 low area.
• This week formed the third leg down since the July 27 high. 
• The bears want a strong breakout below the bull trend line with sustained follow-through selling. So far, they got what they wanted.
• The move down is in a strong bear channel with stronger bear bars. Odds favor at least a small second leg sideways to down after a larger pullback.
• However, it has also lasted a long time and is slightly climactic. A small pullback can begin within 1-3 weeks.
• If there is a larger pullback (lasting at least a few weeks), the bears want a larger second leg sideways to down to retest the current leg extreme low (now Oct 27).
• The bulls want a reversal from a wedge bull flag (Aug 18, Oct 3, and Oct 27) and a trend channel line overshoot.
• They see the current move down as a deep pullback of the whole rally which started in October 2022 low.
• They hope to get a retest of the July 27 high and a strong breakout above.
• The bulls will need at least a strong reversal bar or a small double bottom before they would be willing to buy aggressively.
• Since Friday was a bear bar closing in its lower half, it is a sell signal bar for Monday.
• Odds slightly favor the market to trade at least a little lower.
• Traders will see if the bears can create sustained follow-through selling or will the market trade lower but stall and form a climaxing reversal or a micro double bottom.
• For now, while the market may still trade sideways to down, the bull trend remains intact. 

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