The price action up from 11-Sep’s 13.965 low is about as labored and corrective and 3-wave-looking as it gets, but nonetheless the market’s recovery above 06-Sep’s 14.34 prior corrective high and subsequent recovery above 13-Sep’s 14.39 initial counter-trend high has confirmed at least the intermediate-term trend as up.  The important by-product of this recovery is the market’s definition of 17-Sep’s 14.065 low as the latest smaller-degree corrective low and new short-term risk parameter it is now required to fail below to render this month’s recovery attempt a 3-wave and thus corrective affair consistent with the broader bear trend from Jun’s 17.35 high.  In lieu of such sub-14.065 weakness, further and possibly surprising gains are expected.

From an even shorter-term perspective, Fri’s spasm break confirmed a bearish divergence in very short-term momentum that defines Fri’s 14.465 high as one of importance.  Scalpers are OK to base short positions off of this high until and unless the market takes that high out.  Needless to say a recovery above 14.465 will reinforce a base/correction/reversal count.

The daily chart above shows last week’s bullish divergence in momentum.  Clearly, this mo failure is of an insufficient scale to conclude the end of the broader downtrend from 14-Jun’s 17.35 high.  Indeed, commensurately larger-degree strength above 28-Aug’s 15.07 larger-degree corrective high and key risk parameter remains required to confirm a bullish divergence in momentum of a scale sufficient to not only break this summer’s longer-term downtrend, but resurrect a base/reversal count that we believe could be major in scope.

Critical to a broader base/reversal count even though the market has yet to show “enough” strength to conclude such are:

• the market’s proximity to the extreme lower recesses of the past three years’ range and
• historically bearish sentiment that has warned of and accompanied past major bottoms.

The Bullish Consensus (marketvane.net) measure of market sentiment is the lowest (29%) since that that accompanied and warned of Dec’15’s major low and reversal.  And our RJO Bullish Sentiment Index continues to waft around levels since CFTC managed money data were available in 1995.

Traders are reminded that sentiment/contrary opinion indicators are not applicable the absence of a confirmed bullish divergence in momentum of a scale sufficient to break the broader bear trend.  Herein lies the importance of 28-Aug’s 15.07 larger-degree corrective high.  However, the market’s proximity to the extreme lower recesses of the past three years’ range adds a compelling twist and risk to maintaining a bearish policy “down here” as opposed to a cautious bullish policy.

Finally, traders are reminded of the extent and impulsiveness of Dec’15 – Jul’16’s rally that, in fact, broke the secular bear trend from 2011’s high that identified Dec’15’s 13.62 low as THE low and long-term risk parameter the market needs to break to negate a major, multi-year base/reversal process.  If this base/reversal process is still intact (and we believe it is), then the long-term risk/reward merits of cautious bullish exposure from current 14.365-area prices is extraordinary ahead of an eventual run at 21.225+ levels in the 6-to-12-months ahead.

These issues considered, shorter-term traders have been advised to move to a neutral position and are further advised to move to a cautious bullish policy on the immediate break above 14.465 with subsequent weakness below 14.22 required to negate this cal and warrant its cover.  Long-term players are advised to pare bearish exposure to more conservative levels and jettison the position altogether on a recovery above 14.465 and move to a cautious bullish policy.  A relapse below 14.065 negates this bullish analysis and re-expose the broader downtrend to eventual new lows below 13.965.  In effect we believe the 14.465 and 14.065 levels to be the key directional triggers heading forward.