E-Mini Breaks Above December High

Market Overview: S&P 500 E-mini Futures

The broke above December high this week, which the bulls hope was the last major lower high, thereby ending the bear trend of successively lower highs and lower lows. While some traders may view the December high as a major lower high, the bears want a break above the August high to be sure of the end of the bear trend.

• The January monthly E-mini candlestick was an inside bull bar closing near its high, above the 20-month exponential moving average and the bear trend line.
• Last month, we said that December was a bear bar closing in the lower half and it is a weak buy signal bar for January. Traders will see if the bulls can create a second leg sideways to up, or if the bears can create a follow-through bear bar in January.
• The bears failed to create follow-through selling in January while the bulls have created a second leg sideways to up.
• The bulls see the selloff from January 2022 as a wedge bull flag (February 24, June 17, and October 13).
• They got a reversal up, followed by a pullback in December. They then want a second leg sideways to up, which is currently underway.
• Since January closed above the 20-month exponential moving average and the bear trend line, the bulls will need to create a follow-through bull bar in February to confirm the breakout.
• If they manage to do that, the odds of a retest of the August 2022 high increase.
• The move down since January 2022 had a lot of overlapping bars. The bears are not yet as strong as they hope to be.
• They see the move down from January 2022 as a broad bear channel, with the August 2022 high as the last lower high.
• While the bulls have broken the bear trend line, the bears hope that the recent move up is simply forming another lower high (to Aug 2022) with a flatter trend line.
• If the E-mini trades higher, they want a reversal lower from a double top bear flag with August 2022 high and a lower high major trend reversal.
• Since January was an inside bull bar closing near its high, the E-mini is in breakout mode. The odds favor an upside breakout which it has done so in early February.
• The first breakout from an inside bar can fail 50% of the time.
• Traders will see if the bulls can create a follow-through bull bar in February, or if the E-mini trades slightly higher, but reverses to close with a bear bar below the 20-month exponential moving average.
• The candlesticks in the last 8 months are overlapping between the range of 4300 and 3500 which means the E-mini is in a trading range.
• Traders will BLSH (Buy Low, Sell High) until there is a breakout from either direction.
• Poor follow-through and reversals are more likely within a trading range.
• Until the bulls can break far above the August 2022 high, the broad bear channel may still be in play.

The Weekly S&P 500 E-mini chart

Weekly S&P 500 E-Mini Chart

• This week’s E-mini candlestick was a big bull bar with a prominent tail above.
• Last week, we said that the odds slightly favor the E-mini to still be in the second leg of a sideways to up phase.
• This week broke and closed above the December high. The bulls got follow-through buying following last week’s close above the bear trend line.
• The bulls got a reversal up from a higher low major trend reversal (Dec 22) and a double bottom bull flag (Nov 3 and Dec 22).
• The current move is the larger second leg sideways to up from the rally which started in October 2022.
• They see the last 6 months as forming an inverted head and shoulders, with the December low being the right shoulder.
• However, inverted head and shoulders pattern often ends up as bear flags instead of a reversal pattern.
• Currently, they have a 7-bar bull micro channel, which means persistent buying.
• The bulls broke above the December high, which they hope was the last major lower high, thereby ending the bear trend of successively lower highs and lower lows.
• They need to create follow-through buying above December high and August high to signal the end of the selloff.
• The bears see the current move up simply as a continuation of the move which started in October 2022.
• They want a reversal from a lower high. If the E-mini trades higher, they want a reversal lower from a double-top bear flag with the August 2022 high.
• Because of the strong move-up, the bears will need a strong reversal bar or a micro double top before they would be willing to sell more aggressively.
• While some traders may view December high as a major lower high, the bears want a break above the August high to be sure of the end of the bear trend.
• Until the bulls can break far above the August high, the broad bear channel may still be in play.
• After the spike and broad channel down from January 2022, the E-mini may have transitioned into a trading range phase between 4300 and 3500.
• The move up from October 2022 may simply be a bull leg within a trading range.
• Since this week was a bull bar with a prominent tail above, it is a weaker buy signal bar. It is a weak sell signal bar.
• Traders will see if the bulls can create follow-through buying following the breakout above the December high, or if the E-mini trades stall and reverses lower.