S&P 500 E-Mini: Strong Reversal in the Cards?

12/04/2023

3 minutes read

2023.12.04 09:30

Al Brooks

Market Overview: S&P 500 Emini Futures

The market formed an Emini strong reversal on the Monthly chart, reversing the majority of the selloff of the prior 3 months. The next targets for the bulls are the July 27 high and the all-time high. The bears see the current rally as a retest of the July 27 high and want a reversal from a lower high major trend reversal or a double top.

S&P 500 Emini FuturesS&P 500 Emini Monthly Chart

The November monthly candlestick was a big bull bar closing near its high and above the October high.
Last month, we said that the bull trend remains intact (higher highs, higher lows). If November closes as a bull bar near its high and above October’s high, that will increase the odds of the bull trend resuming.
The bears see the current rally as a retest of the July 27 high and want a reversal from a lower high major trend reversal or a double top.
They want a larger second leg down (with the first leg being the July to October pullback) and a retest of the October low.
Because of the strong rally in November, they will need a strong signal bar before traders would be willing to sell more aggressively.
Previously, the bulls managed to create a tight bull channel from March to July.
That increases the odds of at least a small second leg sideways to up after the recent pullback (Jul to Oct). The second leg up is currently underway.
They got a reversal from a trend channel line overshoot (Oct) and a higher low major trend reversal.
They want a retest of the July 27 high and the all-time high followed by a breakout above.
They hope that the current rally will lead to a multi-month rally, similar to the candlestick in November 2020.
They will need to create a follow-through bull bar in December to increase the odds of the bull trend resuming.
Since November is a big bull bar trading near its high, it is a buy signal bar for December.
Odds slightly favor December to trade at least a little higher. The July 27 high is close enough and likely to be tested.
If the bulls get a follow-through bull bar closing above the July 27 high, it will increase the odds of a retest of the all-time high.
For now, the bull trend remains intact (higher highs, higher lows). This remains true.

Emini-Weekly-6-Bar-Bull-Microchannel-Chart

This week’s Emini candlestick was another consecutive bull bar closing near its high.
Last week, we said that the odds continue to slightly favor the market to still be in the sideways to up phase. Traders will see if the bulls can get another follow-through bull bar or will the market trade slightly higher but close as a doji or with a bear body, beginning the minor pullback phase.
Previously, the bulls got a reversal from a wedge bull flag (Aug 18, Oct 3, and Oct 27) and a trend channel line overshoot.
They got a strong rally with consecutive bull bars breaking far above the 20-week EMA and the bear trend line.
The move-up is in a 6-bar bull microchannel with bull bars closing near their highs. That means strong bulls.
The next target for the bulls is the July 27 high, a logical area for protective stops for the bears.
They hope to create a short covering spike above the July 27 high. Should it happen, bears that have covered will likely not sell again until another significant resistance above (probably above the all-time high next).
If a pullback begins, the bulls want it to be sideways and shallow, with doji(s), overlapping bars and candlesticks with long tails below.
If there is a deep pullback, they want a reversal up from a higher low major trend reversal and the 20-week EMA to act as support.
The bears see the strong rally simply as a retest of the July 27 high.
They hope that the strong move is simply a buy-vacuum test of what they believe to be a 36-month trading range high.
They want a reversal from a lower high major trend reversal (with the July 27 high) or a double top with either the September 1 or July 27 high.
The problem with the bear’s case is that the current rally is very strong.
They will need to create strong bear bars with sustained follow-through selling to increase the odds of a deeper pullback.
Since this week’s candlestick is a bull bar closing near its high, it is a buy signal bar for next week.
Odds continue to slightly favor the market to still be in the sideways to up phase.
Odds also favor buyers below the first pullback from such a strong bull microchannel. The first pullback likely will be minor.
If there is a deeper pullback, odds slightly favor at least a small second leg sideways to up.
Traders will see if the bulls can get another follow-through bull bar or will the market trade slightly higher but close as a doji or with a bear body, beginning the minor pullback phase.