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E-mini: After 13 Bull Bars Streak, Can This Be An Inverted V-Top?

By Al BrooksStock MarketsApr 26, 2021 09:43AM ET
E-mini: After 13 Bull Bars Streak, Can This Be An Inverted V-Top?
By Al Brooks   |  Apr 26, 2021 09:43AM ET
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The S&P 500 E-mini strong bull trend is still under the influence of that streak of 13 consecutive bull bars that ended 2 weeks ago. It should attract profit takers, and this, therefore, will likely limit the near-term upside from here. Traders should expect the buy climax to soon evolve into a trading range, which could last a couple months.

Last week was a bull Doji bar after 4 consecutive big bull bars closing on their highs. It was created by some profit taking, and therefore a pause in an E-mini strong bull trend.

With last week's closing near the high of the week, and making a new high on Friday, Monday might gap up. That would create a gap on the daily and weekly charts. As climactic as the rally is, there is no sign of a top; traders expect higher prices today.

There is an important measured move target at 4244. The Sept.25/Oct. 30 double bottom was a breakout test of the June 5 high. That high is therefore important. The pandemic low is important. Two important prices often create a 3rd important price, which is a measured move target.

Since this is the final week of the month,  there is an increased chance of a big move up or down at the end of the week.

Traders often change the appearance of a bar just before it closes. The bar on the monthly chart closes on Friday.

The bears hope that the 5 bull bars will be an exhaustive buy climax, and a failed breakout above the 6-month tight bull channel. They want this to be the end of the bull trend, and the start of a retracement of half of the yearlong rally.

If this week begins a reversal down, the 1st target is the bottom of the most recent buy climax. That is the low of the 5 consecutive bull bars, which is at the 3,843.25 Mar. 25 low. Five consecutive big bull bars can be a blow-off top, and the end of a bull trend. But because they are coming within a tight bull channel (a Small Pullback Bull Trend) instead of from a breakout of a trading range (like a Final Bull Flag), the 1st reversal down will probably be minor.

A minor reversal in a Small Pullback Bull Trend is typically 1- to 3-bars sideways to down. Sometimes the pullback can go sideways for 10 or more bars before the bulls buy again. That happened in September and October last year.

E-mini Weekly Chart
E-mini Weekly Chart

Again, after 5 weeks closing on their highs, traders expect at least slightly higher prices.

Can this be an inverted V-top?

Can a reversal go straight down over the next few weeks to the Mar. 25 low, or even to a 50% retracement of the year long rally, which is around the Oct. 30 low at 3,200? The high would be an inverted V-top, which is rare and therefore unlikely. The 1st reversal down should be minor. A minor reversal only has a 30% chance of growing into a bear trend without first forming a major trend reversal.

Therefore, if this week or next week is the high for the year and the start of a bear trend, the bears will probably need a lower high major trend reversal before traders see the selloff as a bear trend. To get a lower high major trend reversal, the bears will need a selloff of at least several weeks, and then a rally to a lower high over the course of at least several more weeks.

Since that process typically would require a couple months or more, the downside risk is small in May. Traders expect about a 10% correction at some point this summer. The September and October selloffs last year were each about 10%.

Because this buy climax is so extreme, there is a 40% chance that the 1st reversal down could reach 20%. Most likely, the 1st reversal down will only last 2 to 3 weeks. The bears will probably need at least a micro double top before they can get a reversal down to the Mar. 25 low. However, because the buy climax is so extreme, the selloff could lead to a trading range for a couple months, before the bull trend resumes.

E-mini: After 13 Bull Bars Streak, Can This Be An Inverted V-Top?

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E-mini: After 13 Bull Bars Streak, Can This Be An Inverted V-Top?

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