Get 40% Off
⚠ Earnings Alert! Which stocks are poised to surge?
See the stocks on our ProPicks radar. These strategies gained 19.7% year-to-date.
Unlock full list

S&P 500 E-Mini Forms Embedded Wedge

Published 02/26/2024, 08:49 AM
Updated 07/09/2023, 06:31 AM

Market Overview: S&P 500 Emini Futures

The weekly chart formed an S&P 500 Emini embedded wedge in the current leg up from January. The bulls want a strong breakout into a new all-time high territory, hoping that it will lead to many months of sideways to up trading. The bears hope to get a TBTL (Ten Bars, Two Legs) pullback of at least 5-to-10% but have not yet been able to create strong bear bars.

S&P 500 Emini Futures

S&P 500 Emini Weekly Chart

  • This week’s Emini candlestick was a big bull bar breaking above the outside doji.
  • Last week, we said that while the market continues to be Always In Long, the rally has lasted a long time and is slightly climactic. Traders should be prepared for a minor pullback which can begin within a few weeks.
  • This week continued higher following the big gap up on Thursday following Nvidia’s earnings release.
  • The bulls have a tight bull channel. That means strong bulls.
  • They want a strong breakout into a new all-time high territory, hoping that it will lead to many months of sideways to up trading. They will need to continue to create sustained follow-through buying above the prior all-time high.
  • However, we may also see some profit-taking activity once the market starts to stall. 
  • If a pullback begins, the bulls want it to be sideways and shallow, filled with bull bars, doji(s) and overlapping candlesticks.
  • The bears hope that the strong rally is simply a buy-vacuum test of the prior all-time high.
  • They want a reversal from a higher high major trend reversal and a large wedge pattern (Feb 2, July 27, and Feb 23). They want a failed breakout above the all-time high and the trend channel line.
  • They also see a parabolic wedge in the third leg up since October (Nov 22, Dec 28, and Feb 23) and a micro wedge (Jan 24, Feb 9, and Feb 23).
  • They hope to get a TBTL (Ten Bars, Two Legs) pullback of at least 5-to-10%. They want at least a test of the 20-week EMA.
  • The problem with the bear’s case is that the rally is very strong. They would need to create a few strong bear bars to indicate that they are at least temporarily back in control. So far they have not yet been able to do so.
  • Since this week’s candlestick is a big bull bar closing near its high, it is a buy signal bar for next week.
  • However, being one of the biggest bull bars appearing late in a trend may be a sign of climactic behavior.
  • The recent candlesticks having some overlapping ranges also indicate a slight loss of momentum from the bulls.
  • While the market continues to be Always In Long, the rally has lasted a long time and is slightly climactic.
  • Traders should be prepared for a minor pullback which can begin within a few weeks. This remains true.
  • However, until the bears can create strong bear bars, traders will not be willing to sell aggressively.
  • Sometimes, a euphoric market (as it is now) can continue higher (even when seemingly impossible) into a blow-off top.
  • Traders will see if we start to get more selling pressure or will the bulls continue to create follow-through buying.

S&P 500 Emini Daily Chart

  • The market traded lower earlier in the week but lacked follow-through selling. Thursday gap up following Nvidia’s earnings release but lacked follow-through buying on Friday.
  • Last week, we said that the odds slightly favor the market to still be Always In Long. However, the rally has lasted a long time and is slightly climactic and traders should be prepared for a minor pullback which can begin within a few weeks.
  • The bulls got a tight bull channel up testing the prior all-time high (Jan 2022).
  • They hope that the current rally will form a spike and channel which will last for many months after a deeper pullback.
  • They want another leg up completing the wedge with the first two legs being January 30 and February 12. They got what they wanted.
  • The move up since January now consists of 3 pushes, therefore a wedge (Jan 30, Feb 12, and Feb 23).
  • If there is a deeper pullback, the bulls want at least a small sideways to up leg to retest the current trend extreme high (now Feb 23).
  • The bears hope that the strong rally is simply a buy vacuum retest of the prior all-time high.
  • They want a reversal down from a higher high major trend reversal, a large wedge pattern (Feb 2, July 27, and Feb 23) and a parabolic wedge (Nov 22, Dec 28, and Feb 23).
  • They also see an embedded wedge in the current leg up (Jan 30, Feb 12, and Feb 23).
  • The bears will need to create consecutive bear bars closing near their lows and trading far below the 20-day EMA and the bear trend line to indicate that they are at least temporarily back in control.
  • Since Friday was a small doji bear bar, it is a sell signal bar for Monday albeit not very strong. If the bears can create sustained follow-through selling, it may lead to the start of the pullback phase.
  • For now, odds slightly favor the market to still be Always In Long. However, the rally has lasted a long time and is slightly climactic. 
  • While there are no signs of strong selling pressure yet, traders should be prepared for a minor pullback which can begin within a few weeks. This remains true.
  • Traders will see if the bulls can continue to create sustained follow-through buying above the all-time high.
  • Or will the market continue to stall around the all-time high area, prompting more profit-taking price action to begin soon?

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.