The market's failure this morning below 19-Jan's 1195.4 corrective low and short-term risk parameter discussed in Mon's Technical Blog confirms a bearish divergence in momentum that defines yesterday's 1220.1 high as the END of a 5-wave rally from 15-Dec's 1124.3 low. This exposes what we believe will be just a correction of Dec-Jan's 1124.3 - 1220.1 rally in the weeks ahead in what may provide one of the great, longer-term risk/reward buying opportunities of 2017. Strength above yesterday's 1220.1 high and new short-term risk parameter is needed to mitigate this call, reinstate the 5-wave rally and expose potentially significant gains thereafter.
The Fibonacci fact that yesterday's 1220.1 high came within $0.30-cents of the (1219.8) 38.2% retrace of the decline from 02Aug16's 1374.2 orthodox high to 15-Dec's 1124.3 low would seem to reinforce an interim peak/reversal environment. The daily linear scale chart above also shows the bearish divergence in the stochastics measure of momentum that warns of a rebuttal to Dec-Jan's rally.
From a longer-term perspective however, we believe the extent and impulsiveness of Dec-Jan's 1124.3 - 1220.1 rally reinforces our long-term bullish count that contends that last month's 1124.3 low COMPLETED the (B- or 2nd-Wave) correction of Nov'15 - Jul'16's rally from 1056 to 1358 on a weekly log close-only basis below within a multi-quarter basing process that is reversing the secular bear market from Sep 2011's all-time high. The recent 1124 - 1220 rally is considered the 1st-Wave up of the resumed bull market to eventual and potentially significant highs above 2016's 1375 high.
If this count is correct, then the risk/reward merits of establishing a bullish policy from, say, the 1170-to-1160-range (50%-to-61.8% retraces of Dec-Jan's rally), with protective stops below 1124, would be outstanding. Rather than risking about $35 however, we will require a confirmed bullish divergence in momentum to arrest the suspected correction and provide a tighter but objective risk parameter from which a bullish policy can be more effectively established.
For the time being however and while yesterday's 1220.1 high remains intact as a short-term risk parameter, we anticipate a correction lower that could be relatively extensive. Traders have been advised to move to a neutral/sideline position and could even take a scalp from the bear side from 1210 OB with protective buy-stops at 1220.2.