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E-mini In July: While In Extreme Buy Climax, First Reversal Will Be Minor

By Al BrooksStock MarketsJul 05, 2021 09:43AM ET
E-mini In July: While In Extreme Buy Climax, First Reversal Will Be Minor
By Al Brooks   |  Jul 05, 2021 09:43AM ET
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Market Overview: Weekend Market Analysis

The S&P 500 E-mini futures was breaking strongly above a 3-month bull channel in an extreme buy climax. The magnets above were the top of the bull channel and measured move targets. Since there have been 11 days without a pullback, there should be a brief pullback this week.

The EUR/USD forex market has been in a trading range for a year with no sign that it is about to end. If July reverses up, there will be a triangle. If July continues down, it will probably not fall far below the bottom of the range.

EUR/USD forex market

The EUR/USD monthly chart

EUR/USD Forex monthly candlestick chart in trading range
EUR/USD Forex monthly candlestick chart in trading range

June was big bear bar. It closed on its low and far below the May low. Reversing down from a lower high after last year’s wedge rally to a double top with the February 2018 high.

Bears want a trend reversal. They hope for a break below the November low at the bottom of the year long trading range and then a measured move down to the 2017 low. But markets resist change, and the market is in a trading range. This selloff, therefore, will probably not break strongly below the November low. More likely, the trading range will continue, even if there is a small break below that low.

Last month was a Bear Surprise Bar. But it is in a trading range, and therefore reversals are more likely than trends. There have been many big bull and bear bars over the past year. Every one reversed immediately or after one more bar. That is what is likely this time. That means there might be some follow-through selling in July, but July will probably not break strongly below the range.

So far, July is reversing up from below the June low. If the reversal up continues, but forms a lower high, then there will be a triangle that began in November.

S&P 500 E-mini futures

The Monthly E-mini chart

S&P E-mini Monthly
S&P E-mini Monthly

July gapped above the June high by 1 tick. Small gaps typically quickly close, and this one closed within the first few minutes of the month on Thursday. The next monthly target is measured to move up at 4,537, based on the height of the pandemic crash (from the February 2020 high to the March 2020 low).

June was the fifth consecutive bull bar. There have not been 6 consecutive bull bars since the pandemic low. That increases the chance that July will close below its open.

If July has a bear body, July would be the end of a parabolic wedge rally (3 legs up in a tight bull channel) from the March 2020 low. That would probably lead to profit taking and a 2- to 3-month sideways to down pullback. Traders will buy that first pullback, and therefore it should be only a minor reversal in a strong bull trend.

The Weekly S&P 500 E-mini futures chart

S&P E-mini Weekly Chart
S&P E-mini Weekly Chart

There's a tight bull channel, so we're in a strong bull trend. Next targets are the top of the bull channel and the measured move based on the height of the pandemic crash.

We see a small pullback bull trend for more than 60 bars, which is getting unusual. That increases the chance of the strong bull trend converting into a weaker bull trend. A small pullback bull trend ends with a big pullback.

“Big” means bigger than any pullback in the small pullback bull trend. The biggest pullback was 10% and it lasted 2 months (September and October). Therefore, the strong trend will end once there is a 15 – 20% pullback. That pullback will probably last more than 2 months, and it will probably come this year.

There is no sign that the pullback is about to begin, other than this trend lasting longer than most small pullback bull trends.

Traders will buy the selloff, even if it is 20%. A 20% selloff is a bear “market.” But it will likely only be a pullback on the weekly and monthly charts, not a bear trend. A bear trend is a series of lower highs and lows, and it typically lasts at least 20 bars. While that could happen this year on the daily chart, it should not happen on the weekly or monthly charts.

The best the bears can hope to get this year is a trading range for a few months. The low could be as much as 20% down from the high, but traders will buy it, expecting at least a test of the old high, which would be the top of the trading range.

The bulls hope that the rally from the pullback low will be a resumption of the year long bull trend and not simply a test of the old high.

The Daily S&P 500 E-mini futures chart

S&P E-mini Daily Chart
S&P E-mini Daily Chart

As we see in the chart, there's been a strong rally from the June 18 low, with an 11-bar bull micro channel. That means every low was at or above the low of the prior bar. It is a sign of strong, relentless buying. It is also extreme and it will soon attract profit taking. Should be a 1- to 3-day pullback within next few days.

Bulls will buy the first pullback. Bears typically need at least a micro double top before they can get more than a few days down from a micro channel.

The measured move target is around 4,400. Breakout is above a 3-month trading range. There are several choices for top and bottom of the range. Many computers will use the May 7 high and May 12 low. Measured move up is 4,404.The top of the bull channel is around 4,450, and it is also a magnet above.

The strength of this breakout is similar to that of the early April breakout. Odds favor higher prices, even if it enters a trading range, like after April’s strong breakout.

E-mini In July: While In Extreme Buy Climax, First Reversal Will Be Minor

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E-mini In July: While In Extreme Buy Climax, First Reversal Will Be Minor

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