Following 2-1/2-YEARS of an extraordinarily challenging, rangey peak/reversal process between 2670 and 3430, the 4Q16 meltdown has driven the market down to the extreme lower recesses of an arguable 9-YEAR range bounded by Dec'11's 1983 low shown in the monthly log scale chart below. If there's a time and place for the current bear trend to fade ahead of at least a larger-degree corrective rebound OR major reversal, we believe it is here and now. The fact that bullish sentiment has, understandably, eroded to historically pessimistic levels not seen in 16 years would seem to reinforce a count warning of some vulnerability to HIGHER prices.
The monthly chart above and weekly log chart below clearly show historically bearish levels of sentiment typical of virtually all major BASE/reversal-threat environments. Traders are reminded however that sentiment is not an APPLICABLE technical tool in the absence of a confirmed bullish divergence in momentum of a SCALE SUFFICIENT to break the broader downtrend. As we'll detail below, we believe 06-Jan's 2291 corrective high serves as the risk parameter this market is now minimally required to recoup to stem/threaten the past quarter's collapse "enough" to warrant betting on a bigger correction or reversal higher.
From an Elliott Wave perspective it's simply too subjective an exercise to conclude whether the suspected major 3rd-Wave down from 29Apr16's 3240 high is complete or not, so we urge traders to focus on the more factual momentum indicator and 06-Jan's specific and objective 2291 corrective high and risk parameter.
The daily log active-continuation chart above clearly shows the slowdown in the RATE of descent over the past month. This process is typical of the ends of trends as the proverbial freight train has always gotta slow down before it can throw it in reverse. On this scale however the market has yet to actually break the simple downtrend pattern of lower lows and lower highs. A recovery above 06-Jan's 2291 corrective high is require to, in fact, do this.
On a smaller scale the 240-min chart below shows yesterday morning's recovery above Tue's 2214 smaller-degree corrective high that defines Wed's 2106 low as the END of the decline from at least 06-Jan's 2291 high. As a result Wed's 2106 low serves as a tight but objective short-term risk parameter from which non-bearish decisions like short-covers and cautious bullish punts can be objectively based and managed.
Might this 2106 low be THE LOW of the past QUARTER'S collapse? Given the market's proximity to the extreme lower recesses of a 9-YEAR range amidst bearish sentiment not seen in 16 years, YES. Absolutely. Traders simply cannot objectively CONCLUDE such a broader bullish count after just smaller-degree strength. Again, commensurately larger-degree proof of strength above that 2291 larger-degree corrective high is required for this.
In sum, shorter-term traders are advised to move to a neutral/sideline position as a result of yesterday's recovery above 2214 and are OK to take a cautious punt from the bull side on a setback attempt to the 2160-area OB with a relapse below 2106 required to negate this call and reinstate the major bear. Longer-term players are advised to pare bearish exposure to more conservative levels and jettison the position altogether on a recovery above 2291 that will expose a major correction or reversal higher. While the market remains betwixt and between these 2291 and 2106 directional triggers, aimless, choppy whipsaw behavior should be expected.