E-mini S&P 500 bulls got bull follow-through buying on the weekly chart. The rally in the last 2 weeks was in a tight bear channel. Odds favor a test of the February 2 high. The bulls will need to close far above the February 2 high to convince traders that a re-test of the trend extreme is underway. The bears want the E-mini to stall around the February 2 high and reverse lower from a double top bear flag. Odds slightly favor a second leg sideways to up after a pullback.
- This week’s E-mini weekly candlestick was a bull bar closing near the high. It was a bull follow-through bar following last week’s big bull reversal bar from a higher low major trend reversal and a wedge bull flag.
- Last week, we said that odds slightly favor sideways to up and that the bulls will need to close next week as another bull bar to confirm the reversal higher. The stronger the bull bar and the higher the close, the higher the odds that the correction is over.
- Al said that the market may continue in its eight-month trading range indefinitely. The next target for the bulls is the February 2nd lower high, which is a major lower high. This remains true.
- Since this week closed near the high and followed a big bull bar closing near the high from last week, odds are good that we will test the February 2 high next week.
- The bulls hope that this is the start of the reversal to re-test the trend extreme followed by a new high. They want consecutive bull bars closing near their highs, like the one from October 4 low.
- This week’s bull bar closing near the high is a strong buy signal bar for next week. It increases the odds of a gap up on Monday. If the gap is small, it usually closes early.
- Al has been saying since March 15 that the E-mini should test the February 2 high before breaking below the February 24 low. But it might pull back to the March 3 high first.
- The bears hope that this is simply a pullback (bounce) from the 2-month correction. They want the E-mini to stall around February 2 high and reverse lower from a double top bear flag. They want next week to have a bear body, even though the E-mini may trade higher first.
- The bears want a strong break below the February 24 low which is the neckline of the double top bear flag and a measured move down. There is only a 30% chance of a break below that low before a strong break above the Feb 2 high.
- Al said that if the bears get the breakout below February 24 low (only 30% chance currently), it would follow 3 strong reversals up (wedge bull flag). There would be a lot of trapped bulls because everyone expected higher prices. It would likely lead to a 50% chance of a fast sell-off for about a 500-point measured move down to 3600 based on the height of the 7-month trading range.
- Since this week’s candlestick was a strong bull follow-through bar closing near its high, odds slightly favor sideways to up for next week. Since the February 2 high is less than 50 points above Friday’s close, we may even reach it early next week.
- The bulls will need to close far above the February 2 high to convince traders that a re-test of the prior high and a subsequent breakout to a new high is underway.
- If next week trades higher but reverses and close as a bear bar near the low, traders will start wondering if this will lead to a reversal from a double top bear flag.
- The E-mini is in an 8-month trading range. The trading range is more likely to continue rather than a strong breakout from either direction.