S&P 500 E-Mini in Breakout Mode: Minor Pullback or Another Leg Down?

2023.08.28 08:52

The weekly candlestick formed was an inside bull doji, forming an breakout mode. The bulls want a breakout above, while the bears want a breakout below the inside bar. For now, odds slightly favor the current sideways-to-down pullback to be minor and at least a small retest of the July 27 high after the current pullback.

Emini futures

The Weekly S&P 500 Emini chart

• This week’s Emini candlestick was an inside bull doji, closing above the 20-week exponential moving average.
• Last week, we said that the odds slightly favor at least a small second leg sideways to down after a small pullback and traders will see if the bears can continue to create consecutive bear bars or will the pullback stalls sideways around the 20-week EMA.
• This week traded higher earlier in the week but reversed to close in the lower half with a long tail above.
• The bears got a larger pullback from a climactic move and tested the 20-week exponential moving average.
• They will need to continue creating consecutive strong bear bars trading far below the 20-week exponential moving average (EMA) to convince traders that a reversal down could be underway.
• Previously, the bulls got a strong trend up (since March) in a tight bull channel. That increases the odds of at least a second leg sideways to up after the current pullback.
• They want a measured move using the height of the 6-month trading range which will take them to the March 2022 high area.
• The move up had lasted a long time (4 months) and was climactic. The market needed to trade sideways to down to work off the overbought condition. The minor pullback has begun.
• The bulls want the pullback to be shallow and weak (with overlapping bars, doji(s) and bull bars) and for the 20-week EMA to act as support.
• Since this week’s candlestick was an inside bull doji, the market is in breakout mode.
• The bulls want a breakout above, while the bears want a breakout below the inside bar.
• Sometimes, the candlestick after an inside bar is another inside bar, in which case, it will form an ii (inside-inside) pattern which is a breakout mode pattern.
• Traders will see if the bears can continue to create a breakout below the 20-week EMA or will the pullback stall sideways around the current levels.
• If next week’s candlestick is a strong bull bar breaking above the inside bar and closing near its high, it could lead to a retest of the July 27 high.
• In a strong trend, the market can resume the move from a pullback even without a strong signal bar.

The Daily S&P 500 Emini chart

• The Emini traded higher earlier in the week. Thursday gapped higher but reversed into a big outside bear bar. Friday traded lower but reversed into a bull bar closing in the upper half of its range.
• Last week, we said that the market may trade slightly higher early this week. However, because of the tight bear channel down, odds slightly favor at least a small second leg sideways to down after a pullback (bounce).
• Previously, the bears got a reversal from a climactic move, a wedge pattern (Dec 13, Feb 2, and Jul 27), and a small wedge (Jun 30, Jun 19, and July 27).
• They want at least a small second leg sideways to down after a pullback.
• They got that on Thursday but did not get follow-through selling on Friday.
• A pullback would usually last at least TBTL (Ten Bars, Two Legs). So far, the minimum requirement has been fulfilled.
• They will need to continue creating strong bear bars closing near their lows to increase the odds of a reversal down.
• If the market trades higher, they want a reversal down from a double-top bear flag with the August 24 high.
• The bulls hope that Thursday and Friday were the small second leg sideways to down to retest the pullback extreme (Aug 18).
• They want a reversal up from a double bottom bull flag (Jun 22) and a higher low major trend reversal (Aug 25).
• The move up since the March 13 low is in a tight bull channel which means strong bulls.
• Odds favor at least a small retest of the prior leg’s extreme high (Jul 27) after the current pullback.
• Since Friday was a bull bar closing in the upper half of its range, it is a buy signal bar for Monday.
• If the bulls can create sustained follow-through buying early next week, breaking far above the August 24 high, it will increase the odds of the retest of July 27 high.
• Traders will see if the bulls can create follow-through buying or will the bears be able to create a larger second leg sideways to down.

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