S&P 500 E-Mini: Pullback That Never Comes

2023.07.31 10:35

The market formed an tight bull channel with the bears not being able to create credible selling pressure. If there is a pullback, the bulls want the pullback to be sideways and weak. The bears hope to get at least a deeper pullback from an extended and climactic trend.

S&P 500 Emini Futures

S&P 500 Futures Weekly Chart

• This week’s Emini candlestick was a bull bar with prominent tails above and below.
• Last week, we said that the bears need to create strong follow-through selling to convince traders that they are back in control.
• However, the bears have not been able to do this since the March low.
• The bears want a reversal down from a wedge pattern (Dec 13, Feb 2, and Jul 27) and a micro wedge (Jul 14, Jul 19, and Jul 27).
• At the very least, they want a larger pullback from what seems like an extended trend.
• The problem with the bear’s case is that they have not been able to create strong follow-through selling since the March low.
• They will need to create consecutive strong bear bars closing near their lows to convince traders that a deeper pullback could be underway.
• The Bulls got a strong leg up since March in a tight bull channel.
• Odds are any pullback would likely be minor to be followed by a retest of the current leg extreme (now Jul 27).
• 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 market continues to be Always In Long.
• However, the move up has lasted a long time (4 months) and is slightly climactic.
• The market may need to trade sideways to down to work off the overbought condition.
• The bulls want any pullback to be shallow and weak (with overlapping bars, doji(s) and bull bars).
• Sometimes, the pullback that everyone is waiting for never comes, and the market can continue higher and often ending in a climactic parabolic spike.
• If that occurs, the odds of a deeper pullback from a climactic spike late in a trend would increase significantly.
• Since this week’s candlestick was a bull bar with a prominent tail above, it is a buy signal bar for next week albeit weaker.
• Odds slightly favour a minor pullback to begin anytime. There is no credible short setup still.
• Until the bears can create strong consecutive bear bars to convince traders that they are at least temporarily back in control, the odds will continue to slightly favour sideways to up.

• The Emini traded sideways earlier in the week. Thursday opened higher but reversed into an outside bear bar. Friday gap is higher, forming an IOI (inside-outside-inside) pattern.
• Last week, we said that traders will see if the bears can create follow-through selling. If they do, it could be the start of the minor pullback phase.
• The bears continue to fail to create any type of follow-through selling.
• They want a reversal from a climactic and extended trend. They also see a smaller wedge forming (Jun 30, Jun 19, and July 27).
• If there is a pullback, it would usually last at least TBTL (Ten Bars, Two Legs).
• The problem with the bear’s case is that they have not been able to create sustained follow-through selling.
• They will need to create consecutive bear bars closing near their lows, trading far below the 20-day exponential moving average to increase the odds of a deeper pullback.
• The bulls want a measured move up using the height of the 6-month trading range which will take them near the March 2022 high.
• The move up since March 13 low is in a tight bull channel which means strong bulls.
• However, it has also lasted a long time and is slightly climactic. A minor pullback can begin at any moment.
• Odds slightly favour any pullback to be minor.
• The bulls want any pullback to be shallow and sideways, followed by another leg up completing the wedge pattern with the first 2 legs being June 16 and July 27.
• In some cases where the long-awaited pullback never arrives, the market can continue up into a parabolic climactic spike.
• The market has formed an IOI (inside-outside-inside) pattern, which means the Emini is in breakout mode.
• The bulls want a breakout above while the bears want a breakout below Friday’s high and low respectively. The first breakout can fail 50% of the time.
• Until the bears can create strong consecutive bear bars, odds continue to slightly favour sideways to up.
• The market continues to be Always In Long.

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