Nearly a month ago in 12-Apr’s Technical Blog we introduced the prospect for a broader base/reversal environment stemming from the market satisfying the first two of our three reversal requirements: a confirmed bullish divergence in momentum needed to stem the downtrend and trendy, impulsive-looking behavior on that initial counter-trend rally attempt. In a 23-Apr Technical Blog follow-up after that day’s bearish divergence in short-term momentum, we warned of a suspected 3-wave corrective relapse that the market needed to weather to satisfy the critical third of our three reversal requirements. With yesterday’s rally above both Thur’s 75.42 initial counter-trend high and 25-Apr’s 75.60 corrective high and short-term risk parameter, we can state with confidence that 30-Apr’s 72.20 low is THE END of the correction of Apr’s 70.25 – 79.10 rally and the arguable start to what should be a (C- or 3rd-Wave) resumption of Apr’s rally to new and potentially extensive highs above 79.10.
The critical takeaway here is that 72.20 low as a specific, reliable low and risk parameter from which a more aggressive bullish policy and exposure can now be objectively based and managed. This said, we still acknowledge 19-Apr’s 79.10 high as a key resistant hurdle and gateway to a major reversal of Jan-Apr’s meltdown.
The daily close-only chart above shows the market’s rejection of the extreme lower recesses of the past month’s range as well as 18-Apr’s 78.50 high and exact 50% retrace of Jan-Apr’s 85.67 – 71.55 decline. And indeed, with the market “only” back to the middle of the past month’s range, we cannot ignore an alternate count that would contend this past month’s thus-far lateral chop is just a consolidation ahead of a resumption of Jan-Apr’s major bear. Herein lies THE reason why we have that third reversal requirement: because it identifies an exact low and risk parameter from which a bullish policy can be objectively based and managed.
Contributing mightily to a broader base/reversal count are the following factors:
• waning downside momentum on a WEEKLY close-only basis below (CONFIRMED above 13-Apr’s 77.77 corrective high close)
• the prospect that the entire Jan-Apr decline is a complete 5-wave Elliott sequence on this close-only basis and, most indictingly,
• the drop to a 3-YEAR low of 49% in our RJO Bullish Sentiment Index of the hot Managed Money positions reportable to the CFTC.
This last factor warns of upside vulnerability that could be major in scope.
These issues considered, traders are advised to neutralize all previously recommended bearish exposure if they haven’t done so already. And while the middle-halves of ranges provide poor risk/reward merits for initiating directional exposure, traders are advised to first approach setback attempts to former 75.40-area resistance-turned-support as corrective buying opportunities with a failure below 72.20 required to negate this call and warrant its cover. In lieu of such sub-72.20 weakness we anticipate further and possibly extensive gains to 79.10+ levels in the weeks and perhaps months ahead.
