S&P 500 Futures: Pullback Minor, Odds of Recovery Remain High

Market Overview: S&P 500 Emini Futures

The S&P 500 Futures formed a minor pullback on the weekly chart following the trend channel line overshoot. The bulls want at least a small second leg sideways to up, retesting the current leg extreme (June 16) after the current pullback. The bears want a failed breakout above the August high. They want at least a small pullback from the trend channel line overshoot.

S&P 500 Emini futures

The Weekly S&P 500 Emini chart

• This week’s Emini candlestick was an inside bear bar closing near its low.
• Last week, we said that while the odds continue to slightly favor the market to still be in the sideways to up phase, a minor pullback can begin at any moment.
• The bulls got a strong leg up creating the wedge pattern with the first two legs being December 13 and February 2.
• The move up since May 24 low is in a 5-bar bull microchannel. That means strong bulls.
• They want a breakout far above the August high followed by a measured move using the height of the 6-month trading range which will take them to the March 2022 high area.
• They will need to create follow-through buying trading far above the August high to increase the odds of reaching the measured move.
• If there is a pullback, they want at least a small second leg sideways to up retesting the current leg extreme (June 16).
• The bears want a reversal down from a wedge pattern (Dec 13, Feb 2, and Jun 16) and a double top with the August high.
• They hope to get a failed breakout above the August high. If there is a failed breakout, it would usually occur within 5 bars after the breakout.
• They want at least a small pullback from the trend channel line overshoot. The pullback may have started this week.
• The problem with the bear’s case is that they have not been able to create credible selling pressure with follow-through selling since the March low.
• They will need to create consecutive strong bear bars with follow-through selling to convince traders that a deeper pullback could be underway.
• Since this week was an inside bear bar, the Emini is in breakout mode. Because it is a bear bar closing near its low, odds slightly favor a breakout below it.
• The first breakout from an inside bar can fail 50% of the time.
• While the odds continue to slightly favor the market to still be in the sideways to up phase, a minor pullback can begin at any moment. It may have already begun.
• Traders will see if the bears can create follow-through selling or will the pullback be weak (with overlapping bars, doji(s), and bull bars).
• If the pullback is weak, the odds of a second leg sideways to up to retest the current leg extreme (Jun 16) will increase.

The Daily S&P 500 Emini chart

• The Emini gap lower on Tuesday but closed as a doji bar. The market continued to trade sideways to down for the rest of the week.
• Last week, we said that while the odds continue to slightly favor sideways to up, the move up is also climactic and a minor pullback can begin at any moment.
• 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.
• They will need to break far above the August high with follow-through buying to increase the odds of reaching the measured move target.
• The move up since May 24 low is in a tight bull channel which means strong bulls.
• However, it is also slightly climactic and has the shape of a parabolic wedge (May 30, Jun 5, and Jun 16).
• A minor pullback to the 20-day exponential moving average area can begin at any moment. It likely has begun.
• The bulls want the 20-day exponential moving average to act as support.
• Traders will still expect at least a small leg sideways to up to retest the current leg extreme high (Jun 16) after the pullback.
• The bears have not yet been able to create credible selling pressure.
• They see the move up from October 2022 simply as forming a large wedge (Dec 13, Feb 2, and Jun 16) within a broad bear channel.
• The longer they fail to create the trend resumption lower (the more candlesticks in between) from the selloff from January – October 2022 to now, the less relevant the effects of the prior move down would have on the current price action.
• The bears want a failed breakout above the August high and a reversal from a trend channel line overshoot.
• While this week traded lower, the move down consist of doji(s) and bull bars, which indicates that the bears are not yet strong.
• They will need to create consecutive bear bars closing near their lows, trading far below the 20-day exponential moving average to increase the odds of a deeper pullback.
• For now, odds slightly favor the Emini to still be in the minor pullback phase and for a second leg sideways to up after the current pullback.