As the market has engaged the lower-quarter of the 3775 - 1983-range that has constrained it for most of the past nine years, traders need to be on the look-out for even relatively minor bullish divergence in momentum that cannot be ignored as the start of a broader basing threat. This is especially the case given the fact that the Bullish Consensus (marketvane.net) measure of market sentiment has reached a 16-YEAR low of 20% this week. Our proprietary RJO Bullish Sentiment Index of the hot Managed Money positions reportable to the CFTC remains at a relatively benign 52% however, suggesting the clear and present downtrend could easily have a lot more room to run.
Indeed, the dominance of the current downtrend is clear in the weekly log chart below with the slide ACCELERATING over the past few months. Such accelerated losses typically take time to slow down before ultimately reversing, a process that requires interim corrective recoveries and further rounds of new lows that the market ultimately fails to sustain with a confirmed bullish divergence in momentum. And as always, such a momentum failure requires proof of strength above a prior corrective high of a scale sufficient to threaten or break the major downtrend.
The daily log scale active-continuation chart above shows the developing POTENTIAL for just such a bullish divergence in the stochastics measure of momentum. However, a recovery above 21-Nov's next larger-degree corrective high at 2458 and key risk parameter is required to CONFIRM this divergence to the point of non-bearish action like short-covers and cautious bullish punts. In lieu of such 2458+ strength the long-term trend remains down and is expected to continue.
In Wed's Technical Webcast we discussed approaching this week's rebound as another corrective selling opportunity given the broader bearish backdrop and the market's position below an area of former support-turned-resistance defined by 17-Nov's 2358-area low. The 240-min chart below shows the market's rejection yesterday of the exact (2338) 61.8% retrace of late-Nov/early-Dec's latest portion of the broader bear from 2458 to 2144 that reinforces this bear market correction count. As a result of yesterday's relapse specifying Wed's 2337 high as one of developing importance, shorter-term traders with tighter risk profiles are advised to use this level as our new short-term risk parameter from which a bearish policy and exposure can be objectively rebased and managed.
In sum, a bearish policy remains advised with strength above 2337 and/or 2458 required to threaten or negate this call depending on one's personal risk profile. In lieu of such strength we anticipate a resumption of the broader bear trend to new lows below 2144 and a possible run at Dec'11's 1983 lower boundary to the 9-year range.