Yesterday’s minor poke above Thur’s 1319 high and subsequent relapse below Fri’s 1308.5 corrective low confirms a bearish divergence in momentum that leaves yesterday’s 1320.1 high in its wake as one of developing importance and the end or upper boundary of what we strongly suspect is a (4th-Wave) correction within a 5-wave sequence down from 11-Apr’s 1369.4 high. Per such, this 1320.1 high is considered our new short-term risk parameter to a still-advised bearish policy. In lieu of such 1320.1+ strength we anticipate a resumption of the past month’s downtrend to new and potentially significant lows below 1302.3.
This tight but objective risk parameter at 1320.1 may come in handy given the market’s proximity to the 1305-area that has supported it since early-Mar on a daily close-only basis above. On the heels of Dec-Jan’s rally and even the entire Dec’16-to-Apr’18 rally shown in the weekly log chart below, it’s not hard to construe the past quarter’s basically lateral chop as a mere correction ahead of an eventual resumption of the uptrend that preceded it.
BUT IF the market is trying to complete a broader bull market correction from 25-Jan’s 1362.9 high, then it has got to stem the clear and present slide from that early-Apr high. And admittedly short-term strength above 1320.1 would be the first indication of such.
Alternatively, if the price action from this year’s 1369-area resistance- which the weekly chart below shows has also capped this market for nearly TWO YEARS- is still part of a much longer-term consolidation and the market’s prepping for a bigger collapse, then we suspect this market will start to free-fall in the near future. How the market deals with the 1305-area will be pivotal to either outcome.
If the past quarter’s price action is that of a broader peak/reversal process within the past couple years’ range, then it should pretty much melt down after breaking below 1305. If, alternatively, the market clearly breaks below 1305 on a closing basis (or below 1302 on an intra-day basis) and then fails to sustain those losses with a recovery above 1320.1, then we believe the market will be poised for sharp gains thereafter. In effect, we believe this 1305/1302-area to be an excellent and objective flexion point round which to toggle directional exposure and policy. In essence, be bearish below 1302 and bullish above 1320.
Relative to the 1305-area toggle point, we’d like to point out the erosion to relatively historically low levels in our RJO Bullish Sentiment Index of the hot Managed Money positions reportable to the CFTC. The current 63% reading is near levels that have warned of and accompanied the ENDS of corrections in Jul’17, Dec’16 and Dec’15. These levels will NOT keep this market from tanking below 1302 if there’s something bigger to the bear side brewing. BUT IF the market breaks below 1302 and then recovers above 1320, this associated sentiment condition would contribute once again to another BASE/reversal condition and opportunity.
From an even longer-term perspective shown in the monthly log chart below, traders are reminded of the major, multi-year BASE/reversal elements that have existed since Feb’16’s bullish divergence in momentum ENDED the secular bear trend from 2011’s 1920 all-time high. The market’s weathering of Jul-Dec’16’s (B- or 2nd-Wave) corrective retest of the low and subsequent extreme pressure on 2016’s 1377 initial counter-trend high is solid reinforcing evidence of a long-term bullish count calling for levels well above 1377 in the quarters and even years ahead. Weakness below 12Dec17’s 1238.3 corrective low is MINIMALLY required to threaten this call while a failure below Dec’16’s 1123 low is required to negate it.
These issues considered, a bearish policy remains OK as long as the market sustains levels below our 1320.1 short-term risk parameter. We anticipate a break below 1302 to what might then be indeterminable losses thereafter. But a subsequent recovery above 1320.1 would not only threaten and broader bearish count, but also resurrect a bullish one that could produce extensive gains for months thereafter. In effect, traders are advised to toggle directional exposure and policy around the 1302-to-1320-range.
