E-Mini: Monthly Candlestick Closes Above 20-Month EMA

h2 Market Overview: S&P 500 E-mini Futures

The S&P 500 E-mini futures closed below the 20-month exponential moving average (EMA) in June. It reversed to close above 20-month EMA in July, like the prior 2 occurrences during the sell-off in December 2018 and the COVID-19 sell-off in 2020. The bulls need to create a consecutive bull bar in August to increase the odds of a re-test of the all-time high. July is an inside bull bar. It is a breakout mode pattern. The first breakout has a 50% chance of failing.

h2 S&P500 E-mini futures/h2 h3 The Monthly E-mini chart/h3

• The July monthly E-mini candlestick was a big bull inside bar closing near the high.
• The last 2 times the E-mini closed below the 20-month exponential moving average were during the sell-off in December 2018 and the Covid-19 sell-off in 2020. The E-mini then reversed to close above the 20-month exponential moving average the following month.
• The E-mini closed below the 20-month EMA in June. It reversed to close above 20-month EMA in July, like the prior 2 occurrences.
• Last month, we said that the trend channel line overshoot in June increases the odds of a pullback to begin within 1-2 months. This month was the pullback.
• The bears see the move down in June as the second leg down from the 1^st leg in April. They want a measured move down to 3600 based on the height of the 9-month trading range height or lower around 3450, based on the height of the 12-month trading range starting from May 2021.
• However, the bears failed to create a follow-through bear bar below May low.
• Bulls want the breakout below May low to fail and reverse back up.
• The bulls see the move down from the January top as a two-legged pullback. They want a reversal higher from a wedge bull flag (February 24, May 20 and June 17) and a trend channel line overshoot.
• July was an inside bar; the E-mini is in breakout mode. The first breakout from an inside bar can fail 50% of the time.
• Since it is a bull bar closing near the high, it is a buy signal bar for August. It may even gap up on the monthly chart next week. However, small gaps usually close early.
• The bulls will need to create a consecutive bull bar in August to increase the odds of a re-test of the all-time high.
• For now, odds slightly favor sideways to up as the E-mini should still be in the pullback phase.
• Traders will be monitoring if the bulls can create a consecutive bull bar or not. If they do, the odds of the E-mini trading higher increase.

h3 Weekly S&P 500 E-mini chart/h3

• This week’s E-mini candlestick was a bull bar closing near the high with a long tail below. It closed above the 20-week exponential moving average.
• Last week, we said that odds slightly favor sideways to up. Traders will see whether the bulls get a follow-through bull bar, something they have failed to do since March. They got that this week.
• Bulls want a reversal higher from a trend channel line overshoot, and a wedge bottom (Feb 24, May 20 and June 17). They want a continuation higher from a higher low major trend reversal.
• They managed to break above the bear trend line and close above the 20-week exponential moving average, closing just slightly below the June 2 high.
• This is the first pair of consecutive bull bars (follow-through buying) since March. If the bulls get another strong bull bar next week, it increases the odds that the 6-month correction has ended.
• The bears want the E-mini to stall around the June 2 high. They want a reversal lower from a double top bear flag.
• The bears hope next week closes as a bear bar, even though it may trade above June 2 high and test the near May 4 high first.
• They then want a reversal down from a lower high followed by a re-test of the June low.
• Since this week was a bull bar closing near the high, it is a buy signal bar for next week. The E-mini may gap up next week. Small gaps usually close early.
• In the last 6 weeks, the bears are not getting consecutive bear bars (follow-through selling) like those from April to June. The bear bars have prominent tails below and the bull bars have closes near the highs or above the middle of the bar.
• That means the buying pressure is increasing while the selling pressure is decreasing.
• For now, odds slightly favor sideways to up to test the June 2 high and maybe the May 4 high.
• Traders will see if the bulls get the third consecutive bull bar next week or if it trades higher but reverses to close as a bear bar instead.

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Written By: Al Brooks