S&P 500 E-Mini: Test of the 20-Week EMA Likely

The S&P 500 Futures bears tested the 20-week EMA on the weekly chart. They need to create follow-through selling trading far below the 20-week EMA to increase the odds of a reversal down. The bulls see the move down as a minor pullback and want at least a small retest of the July 27 high.

The Weekly S&P 500 Emini chart

• This week’s Emini candlestick was another consecutive bear bar closing in its lower half with a prominent tail below.
• Last week, we said that the odds continue to slightly favor the market to still be in the sideways to down pullback phase.
• The bears got a reversal down from a wedge pattern (Dec 13, Feb 2, and Jul 27) and a micro wedge (Jul 14, Jul 19, and Jul 27).
• They want a larger pullback from a climactic move.
• A reasonable target for the bears is the 20-week exponential moving average and they got it this week.
• They will need to continue creating consecutive strong bear bars trading far below the 20-week exponential moving average (EMA) to convince traders that a reversal down could be underway.
• The bulls got a strong leg up (since March) in a tight bull channel.
• They want a measured move using the height of the 6-month trading range which will take them to the March 2022 high area.
• The move up had lasted a long time (4 months) and was climactic.
• The market needed to trade sideways to down to work off the overbought condition. The minor pullback has begun.
• The bulls want any pullback to be shallow and weak (with overlapping bars, doji(s) and bull bars) and for the 20-week EMA to act as support.
• For now, odds are the pullback would likely be minor to be followed by at least a small retest of the prior leg high (Jul 27).
• Since this week’s candlestick was a bear bar closing in the lower half, it is a sell signal bar for next week.
• The odds slightly favor at least a small second leg sideways to down after a small pullback.
• Traders will see if the bears can continue to create consecutive bear bars or will the pullback stall sideways around the 20-week EMA.
• If next week is a surprise bull bar about equal in size to this week’s candlestick closing near its high, it could lead to a retest of the July 27 high.

The Daily S&P 500 Emini chart

• The Emini traded lower for the week. Friday gapped lower but reversed to close as a bull bar near in its upper half.
• Last week, we said that odds slightly favor the market to still be in the sideways to down pullback phase.
• The bears manage to create another leg down this week. The move down is in a tight bear channel.
• They got a reversal from a climactic move, a wedge pattern (Dec 13, Feb 2, and Jul 27), and a small wedge (Jun 30, Jun 19, and July 27).
• A pullback would usually last at least TBTL (Ten Bars, Two Legs). So far, the minimum requirement has been fulfilled.
• They will need to continue creating strong bear bars closing near their lows, trading far below the bull trendline to increase the odds of a reversal down.
• If there is a pullback (bounce), they want at least a small second leg sideways to down.
• The bulls want a measured move up using the height of the 6-month trading range which will take them near the March 2022 high.
• The move up since March 13 low is in a tight bull channel which means strong bulls.
• However, it also lasted a long time and was climactic. A minor pullback has begun.
• The bulls want a retest of the July 27 high followed by a breakout above and a continuation of the bull trend.
• Since Friday was a bull bar closing in the upper half, it is a buy signal bar for Monday.
• The move down is slightly climactic. The market may trade slightly higher early next week.
• However, it is following a 5-bar bear microchannel. It may not be a strong buy setup.
• Because of the tight bear channel down, odds slightly favor at least a small second leg sideways to down after a pullback (bounce).
• Overall, odds slightly favor the current sideways to down pullback to be minor and at least a small retest of the prior trend high (Jul 27) after the pullback phase.
• For now, traders will see if the bears can create another leg down after a pullback or will the bulls start creating strong consecutive bull bars instead.
• If the bulls manage to create consecutive bull bars closing near their highs instead, it could lead to a retest of the July 27 high.