Mo Failure Stems Nat Gas Slide; Premature to Conclude Bottom

December 28, 2017 9:04AM CST

In yesterday's Technical Blog we identified Tue's 2.766 high as the level the market needed to sustain losses below to maintain a more immediate bearish count. It's failure to do so overnight confirms a bullish divergence in momentum that ends the decline from at least 13-Nov's 3.321 high and confirms at least the intermediate-term trend as up.

An important by-product of this bullish divergence in mo is the market's definition of yesterday's 2.612 low as the latest smaller-degree corrective low it must now sustain gains above to maintain a bullish count. Its failure to do so will render the recovery attempt from 21-Dec's 2.562 low a 3-wave and thus corrective affair consistent with a broader bearish count and expose a resumption of 2017's major downtrend. Per such 2.612 becomes our new short-term risk parameter from which non-bearish decisions like short-covers and cautious bullish punts can now be objectively based and managed.
The bullish divergence in daily momentum (above) also warns that 21-Dec's 2.562 low is the END of a 5-wave Elliott sequence from 13-Nov's 3.321 high. With a massive 11 months' worth of larger-degree peak/reversal-process behavior PRECEDING that 13-Nov high however, the past week's recovery attempt easily falls within the constraints of a mere (4th-Wave) correction ahead of still further losses in the weeks and months ahead.

To jeopardize the impulsive integrity of such a broader bearish count, continued impulsive behavior above 01-Nov's 2.991 (suspected 1st-Wave) low is now required. Per such, we are raising our longer-term bear risk parameter to 2.991.

Not to be missed within this base/reversal-threat environment stemming from today's bullish divergence in momentum is the fact shown in the weekly log chart below that the Bullish Consensus ( measure of market sentiment has eroded to a historically low 28%, its lowest level since Feb'17 that warned of and accompanied Feb-May's extensive corrective recovery.
Additionally, on a weekly log active-continuation basis the chart below shows the market's rejection thus far of the area around the 2.64-handle that defines the lower boundary of this year's range. The market's failure to sustain recent sub-2.64 losses is an indication of "non-weakness" that, along with bearish sentiment, could lead to another more extensive, if intra-range rebound.

These issues considered, all but the longest-term traders have been advised to pare or neutralize bearish exposure following overnight's break above 2.766 and are further advised to move to a neutral/sideline position in order to circumvent the heights unknown of a correction or reversal higher. Against the backdrop of this year's broader downtrend however, we believe "chasing" bullish exposure on this current rally to be a poor risk/reward bet. Very long-term players are OK to maintain a more conservative bearish policy with commensurately larger-degree strength above 2.991 required to negate this call and warrant its cover.


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