S&P 500 E-Mini: Pullback Eyes Test of Critical Support at 20-Month EMA

2024.08.05 09:46

Market Overview: S&P 500 E-Mini Futures

The market is forming a monthly pullback following an extended rally. The bulls want the current pullback to be sideways and shallow.

The bears need to create a strong bear bar in August with follow-through selling in September to increase the odds of retesting the 20-month EMA.

S&P 500 E-Mini Futures

The Monthly E-Mini Chart

• The July monthly E-Mini candlestick was a bull doji bar closing slightly below the middle of its range.
• Last month, we said that traders will see if the bulls can create another breakout into new all-time high territory in July or will the market start to stall around the current levels and begin the pullback phase.
• The market made a new all-time high in July but reversed to close below June’s high.
• The bulls got a strong rally starting in October in the form of a tight bull channel.
• They got a strong leg up completing the wedge pattern (Jul 27, Mar 21, and Jul 16).
• They hope that the market has entered a broad bull channel phase, which will last for many months.
• They want the current pullback to be sideways and shallow (filled with weak bear bars, bull bars, doji(s) and overlapping candlesticks). 
• They want the pullback to form a higher low or a double bottom bull flag with the April 19 low, followed by a resumption of the broad bull channel.
• At the very least, they want a retest of the July 16 high, even if it forms a lower high.
• If there is a deeper pullback, they want the 20-month EMA to act as support.
• The bears want a reversal from a higher high major trend reversal, a large wedge pattern (July 27, March 21, and Jul 16), and a micro wedge (May 23, June 28, and Jul 16).
• They see the 3 sideways candlesticks (Mar, Apr, and May) as forming a possible final flag of an extended rally.
• They see a possible blow-off top forming and hope to get a deep pullback within a few months. The pullback phase may have started in August.
• They need to create a strong bear bar in August with follow-through selling in September to increase the odds of retesting the 20-month EMA.
• Since July was a bull doji bar closing slightly below the middle of its range, it is a neutral signal bar for August.
• The rally has lasted a long time and is slightly climactic.
• Traders are looking for reasons to take profits and will only look to buy after a deeper pullback.
• Odds slightly favor the sideways to down pullback has started.
• Traders will see if the bears can create a strong bear bar in August or will the market trade lower (as it did now) but reverse to close with a long tail or a bull body by the end of the month.
• Odds slightly favor the pullback to be minor.

The Weekly S&P 500 E-Mini Chart

• This week’s E-Mini candlestick was a big bear bar with a prominent tail below and a long above, closing below the 20-week EMA.
• Last week, we said that the odds slightly favor the sideways to down pullback lasting at least a few weeks. Traders will see if the bears can create another follow-through bear bar, closing below the 20-week EMA. Or will the market trade slightly lower but stall around the July 25 low or the 20-week EMA area?
• The bears got a reversal from a higher high major trend reversal, a wedge pattern (Jul 27, Mar 21, and Jul 16) and a trend channel line overshoot.
• They also see an embedded wedge (May 23, Jun 28, and Jul 16) and a final flag pattern (sideways consolidation from the mid to the end of Jun).
• They want a TBTL (Ten Bars, Two Legs) pullback trading far below the 20-week EMA.
• At the very least, they want a retest of the April 19 low, even if it forms a higher low.
• Since this week closed below the 20-week EMA, the bears need to create a follow-through bear bar to increase the odds of retesting the April low.
• The bulls hope that the market is in the broad bull channel phase. 
• They want the pullback to form a higher low followed by a resumption of the broad bull channel.
• They want the 20-week EMA or the bull trend line to act as support (just like in April).
• They hope to get at least a small retest of the all-time high, even if it only forms a lower high.
• Since this week’s candlestick is a bear bar closing near its low, it is a sell signal bar for next week. 
• The market is trading at a potential support area (20-week EMA).
• The 3-week selloff has lasted a long time and is slightly climactic.
• We may see a minor pullback (maybe lasting 1-2 weeks), followed by at least a small second leg sideways to down in the weeks ahead.
• Traders will see if the bears can create a follow-through bear bar trading below the 20-week EMA.
• Or will the market form a minor pullback in the next 1-2 weeks instead?
• For now, the selloff is strong enough for traders to expect at least a small second leg sideways to down after a pullback (bounce).
• If a pullback (bounce) forms and it is weak and sideways, the odds of another strong sideways-to-down leg will increase.

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