MNI MARKETS ANALYSIS; S&P E-Minis - The 50-Day EMA And Trend Direction

Executive summary:

• S&P E-minis faced strong selling pressure Monday. However the contract has recovered from its 4293.75 low.
• The bear cycle is currently 11 trading days old and the recent move lower highlights a number of key technical developments that signal the potential for a deeper retracement.
• It is also possible however that we will again see a relatively shallow correction unfold ahead of a resumption of the primary bull trend - this has occurred on a number of occasions this year.

S&P E-minis faced strong selling pressure Monday. However the contract has recovered from its 4293.75 low. The bear cycle is currently 11 trading days old and the recent move lower highlights a number of key technical developments that signal the potential for a deeper retracement. It is also possible however that we will again see a relatively shallow correction unfold ahead of a resumption of the primary bull trend - this has occurred on a number of occasions this year. The key technical points to note are:

• Monday's weakness resulted in a break of the key 50-day EMA. We have discussed this average before given that it has played a key role in determining where support likely exists in this contract once a corrective pullback unfolds. The chart highlights recent phases where this EMA has successfully halted a corrective pullback.
• Monday's price action also resulted in a clear break of support at 4339.75, Aug 19 low. This highlights a threat to the current bullish price sequence of higher highs and higher lows.
• Furthermore, momentum studies are currently in a clear downward cycle, reinforcing a bearish risk.
• The 50-day EMA, currently at 4407.72 marks a key short-term resistance and while price remains below it, a bearish risk remains present.
• A clear break back above the EMA and an ability to hold above it, would provide a strong short-term signal that Monday's low is not just a key support but also a reversal point marking the end of the recent corrective sell-off. Attention would shift to the all-time high of 4539.50, Sep 3 hig. A break of this hurdle would confirm a resumption of the primary uptrend.
• It is worth noting that the 20-day and 50-day EMA set-up remains in a bull mode condition despite the recent move lower. This tells us that the primary uptrend remains intact.
• Watch support at 4293.75 and resistance at the 4407.72 EMA level.