Markets Show Caution After Weak Pullback
The S&P 500 Emini Futures market has formed an outside bear bar pullback on its weekly chart. Traders are watching closely to see if the bulls can create strong follow-through buying or if the bears will regain control.
Bulls Want a Weakened Pullback, Bears Need Strong Selling
For the bulls, any weakness in the market should be accompanied by a lack of selling pressure, allowing them to maintain their dominance. They want the 20-week EMA and the bull trend line to act as support, preventing the market from collapsing under its own weight.
On the other hand, the bears believe that the current move is a retest of the prior trend’s extreme high (December 6). They are waiting for the market to form a lower high major trend reversal or a double top with December 6. To confirm this, they need to create strong follow-through selling by trading below both the 20-week EMA and the bull trend line.
Buying Pressure has Been Stronger than Selling
The buying pressure since the April 7 low has been significantly stronger, with most trades closing near their highs, indicating that traders are bullish on the market. In contrast, the selling pressure during this period has been weak and limited, failing to break below key support levels.
Market Likely Flipped into Always-In-Long
Given the strength of recent buying pressure, it’s likely that the market has flipped into an "Always-In-Long" state, meaning that traders are optimistic and willing to hold on to their long positions rather than risk losing money by taking profits or covering shorts. This shift in sentiment increases the likelihood of a minor pullback being followed by a stronger price move upwards.
Current Pullback may be Minor
The odds slightly favor the current pullback being relatively minor, with the market likely regaining its strength and continuing the upward trend to retest recent highs. Traders will need to monitor closely for signs of follow-through selling or a lack of support in the 20-week EMA area.
However, it’s also possible that the market may trade slightly lower as bears try to regain control. In this case, traders should look out for signs of strong follow-through bear bars trading below the 20-week EMA, which could indicate a change in sentiment and a more significant pullback ahead.
