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04/17/2017 2:45 am EST


Al Brooks, MD

Professional Trader, Author, Lecturer, Brooks Price Action, LLC and Brooks Trading Course

The monthly S&P500 Emini futures candlestick chart has a bear inside bar so far this month. It is stalling at a measured move up from the 2-year trading range, according to Al Brooks, MD, who has traded full-time for 30 years and is the author of several books.

The monthly chart has been in a strong bull trend for 8 years. While there is no top yet, the 2014-2015 trading range will probably be the final bull flag. Consequently, the rally will probably not continue much higher before there is a reversal down to the bottom of that final flag. Hence, 1800 is a target for the bears at some point in the next couple of years.

chart 1

The monthly S&P500 Emini futures candlestick chart has stalled for 2 months after a 4 month buy climax. Since the buy climax was a test of the measured move projection based on the 2-year trading range, this rally might be simply a buy vacuum test of resistance. Consequently, it has an increased chance of being an exhaustive end of the 8-year bull trend.

While it is possible the it is a breakout into a new, stronger bull trend, this is less likely after an 8-year bull trend. Hence, the gap between this month’s low and the August high is more likely an exhaustion gap than a measuring gap.

Buy climax, but bull flag likely

A climax at resistance is usually not enough to reverse a bull trend into a bear trend. Since this 16-month rally is in a tight bull channel, bulls have been willing to buy at the high of every bar. Hence, if the Emini trades below the low of the prior month, many bulls will see the reversal as an opportunity to buy at a discount. Therefore, bulls will buy the 1st reversal down. It will consequently likely become a bull flag and not a bear trend.

chart 2

A micro double top can lead to a major reversal

If the bull trend resumes after a 1- to 3-month pullback, the bears will be more willing to sell. This is because they then would have a micro double top at major resistance. They therefore would have a higher probability of creating a major reversal.

chart 3

A micro double top on the monthly chart is a double top major trend reversal on the daily chart. Since this would have a 40% chance of a swing down, the bears would have a reasonable chance of a test of the 1800 bottom of the 2-year final bull flag.

chart 4

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