S&P 500 E-Mini Futures: Bulls Need a Strong Breakout Above Feb. 2 High

2023.05.08 09:15

The  formed an Emini double bottom at the 20-week exponential moving average. So far, the pullback in the Emini has gone sideways. The bears are not yet strong. The bulls want a strong breakout above February 2 high followed by a measured move up using the height of the 5-month trading range. 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).

S&P500 Emini futures

The Weekly Emini chart

• This week’s Emini candlestick was an outside bear doji with a long tail below.
• Last week, we said that the odds slightly favor the Emini to trade at least a little higher.
• This week traded above and below last week’s high and low respectively but close in the upper half of the 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 5 weeks 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 want another strong leg up breaking far above February 2 high.
• The next targets for the bulls are the February 2 high and the August 2022 high.
• They want a strong breakout above 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 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 5-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.
• The last two candlesticks have long tails below and closed above the middle of their respective ranges. The bears are not yet strong.
• 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.
• Since this week was a bear doji closing in the upper half of the week’s range and with a long tail below, it is not a strong sell signal bar. It is a buy signal bar albeit weaker.
• The candlestick after an outside bar sometimes is an inside bar forming an ioi (inside-outside-inside) pattern, which is a breakout mode pattern. Or often, it has a lot of overlapping price action.
• The Emini has formed a 5-bar trading range around the February 2 high which has the shape of a small expanding triangle.
• For now, the odds slightly favor the Emini to still be in the sideways to up phase until the bears can create credible selling pressure (strong bear bars with follow-through selling).
• Traders will see if the bulls can create a retest and breakout above the February high with follow-through buying or will the market continue to stall around the February 2 high area.

The Daily S&P 500 Emini chart

• The Emini traded higher on Monday but sold off to below last week’s low by Thursday. Friday gapped up and close above the 20-day exponential moving average as a bull bar with a prominent tail above.
• Previously, we said that the large wedge (Dec 13, Feb 2, and Apr 18) and smaller wedge (Mar 22, Apr 4, and Apr 18) increase the odds that we may see a pullback which likely has begun 2 weeks ago.
• The market formed 2 prominent legs down in the pullback with deep pullbacks and is trading sideways 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 determined that the August high is the last major lower high, therefore, believe that the Emini is still in a bear trend.
• They want a retest of the October low from a lower high major trend reversal or a double top (Feb 2).
• They also see a smaller wedge forming (Apr 4, Apr 18, and May 1).
• The bears hope Friday was simply a deep pullback and wants another leg down breaking far below the April/May lows.
• If the Emini trades higher, the bears hope that the 5-week trading range is the final flag of the leg up and want a reversal down from a failed breakout above February 2 high.
• The bulls want a retest of the February 2 high followed by a breakout and a measured move 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). They want a strong breakout above February 2 high soon.
• Since Friday was a big bull bar closing in the upper half above, it is a buy signal bar for Monday.
• 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 around the February 2 high.
• Traders will BLSH (Buy Low, Sell High) until there is a breakout from either direction with follow-through buying/selling.

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