S&P 500 E-Mini’s Pullback Starts: Bulls Hope it Will Be Shallow

01/08/2024

3 minutes read

2024.01.08 11:29

Al Brooks

Market Overview: S&P 500 Emini Futures

The market formed an start of PB (pullback) following a climactic rally, ending the 10-bar bull microchannel streak. The bulls want the pullback to be sideways and shallow (with doji(s), bull bars and overlapping candlesticks), possibly forming a double-bottom bull flag. The bears will need to create sustained follow-through selling to increase the odds of a deeper pullback.

S&P 500 Emini FuturesS&P 500 Emini Weekly Chart

This week’s Emini candlestick was a bear bar closing near its low with a small tail below.
Last week, we said that until the bears can create strong consecutive bear bars or a big reversal bar, odds continue to favor the market to remain in the sideways to up phase.
This week gapped lower at the open and closed down for the week, ending the 10-bar bull microchannel streak.
The bulls got a strong rally in the form of a 10-bar bull microchannel with bull bars closing near their highs. That means strong bulls.
The next target for the bulls is the all-time high. They want a strong breakout into new all-time high territory, hoping that it will lead to many months of sideways to up trading.
Usually, traders expect buyers below the first pullback from such a strong bull microchannel. Will it be the same this time? Or not because of the climactic nature of the rally?
If a two-legged pullback begins, the bulls want it to be sideways and shallow (with doji(s), bull bars and overlapping candlesticks), possibly forming a double bottom bull flag.
If there is a deep pullback, they want a second leg sideways to up and the 20-week EMA to act as support.
The bears hope that the strong move is simply a buy-vacuum test of what they believe to be a 37-month trading range high.
They want a reversal from a higher high major trend reversal (with the July 27 high) or a lower high major trend reversal (with the all-time high).
They also see a large wedge pattern (Feb 2, July 27, and December 28) and a micro wedge (Dec 14, Dec 20, and Dec 28).
The problem with the bear’s case is that the rally is very strong.
They will need to create sustained follow-through selling to increase the odds of a deeper pullback.
The next targets for the bears are the September 1 high and the 20-week EMA.
Since this week’s candlestick is a bear bar closing near its low, it is a sell signal bar for next week.
However, it is following a 10-bar bull microchannel which means strong bulls.
Traders would prefer a second entry (Low 2 sell setup) before they would be willing to sell more aggressively.
For now, odds slightly favor the market to still be in the sideways to down pullback phase. Traders will see if the bears can create a follow-through bear bar next week.
Odds slightly favor the pullback to be minor and the market to still be Always In Long.

S&P 500-Emini Daily Chart

The market traded lower for the week, testing the 20-week EMA.
Previously, we said that while the market is becoming increasingly climactic until the bears can create strong bear bars, odds slightly favor the market to remain in the sideways to up phase.
The bulls got a strong rally with several big gaps that remained open and in a tight bull channel.
They hope that the current rally will form a spike and channel which will last for many months after a pullback.
They want the 20-day EMA to act as support and form a 20-Gap-Bar buy setup. They want a reversal from a double-bottom bull flag (Dec 20 and Jan 5) or a wedge bull flag (Dec 14, Dec 20, and Jan 5).
They want any pullback to be sideways and shallow (with doji(s), overlapping bars, bull bars and candlesticks with long tails below).
They see the current pullback as a test of the breakout point (July 27 high).
They want a resumption of the trend to retest the all-time high.
The bears hope that the strong rally is simply a buy vacuum retest of what they believe to be a 37-month trading range high.
They want a reversal down from a lower high major trend reversal (against the all-time high) and a large wedge pattern (Feb 2, July 27, and December 28).
They hope to get at least a TBTL (Ten Bars, Two Legs) pullback. They want at least a test of the September 1 high which was the prior breakout point.
The bears will need to create consecutive bear bars closing near their lows and trading far below the 20-day EMA to increase the odds of a deeper pullback.
For now, the buying pressure remains stronger (tight bull channel) as compared with the selling pressure (small pullback).
Traders see the current pullback as long overdue and within expectation.
Odds slightly favor the market to still be in the sideways to down pullback phase.
Traders still expect the market to form at least a small sideways to up leg to retest the prior leg’s extreme high (Dec 28) after the pullback.
The market remains Always In Long for now.