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Fri’s break, temporary or not, below 16-Jul’s 2.8450 low and our short-term risk parameter confirms a bearish divergence in short-term momentum discussed in 20-Jul’s Technical Blog that threatens the broader bull trend with at least an intermediate-term correction and possibly a more protracted reversal lower. The 240-min chart above shows that this weakness leaves 29-Jul’s 2.9435 high in its wake as the latest smaller-degree corrective high the market is now required to sustain losses below to maintain a more immediate bearish count. Its failure to do so will render the sell-off attempt from 13-Jul’s 2.9930 high a 3-wave and thus (4th-Wave) corrective affair that would then re-expose the broader bull trend from 19-Mar’s 1.9725 low shown in the daily chart below. Per such, this 2.9435 high is considered our new short-term but key risk parameter from which non-bullish decisions like long-covers and bearish punts can be objectively based and managed.
Given the magnitude of the impressive, impulsive 4-1/2-month uptrend, the past three weeks’ sell-off attempt thus far falls well within the bounds of a mere (4th-Wave) correction within this major uptrend ahead of an eventual (5th-Wave) resumption of the bull to new highs above 2.9930. As a direct result of Fri’s sub-2.8450 slip however, proof of strength above 2.9435 is absolutely required to reinforce this bullish count and re-expose the bull. Until and unless such 2.9435+ strength is shown, the extent of further downside correction or reversal is indeterminable and potentially severe.
From a longer-term perspective, the challenge is identifying a longer-term risk parameter the market is required to fail below to objectively break Mar-Jul’s major uptrend. Arguably and as a direct result of the steep and unrelenting nature Jun-Jul’s portion of the bull, 16-Jun’s 2.5310 corrective low serves as that larger-degree corrective low and key long-term risk parameter the market still needs to fail below to break the impulsive integrity of Mar-Jul’s major uptrend. As conducting non-bullish decisions “down there” seems impractical even to long-term players, longer-term players are advised to acknowledge and accept whipsaw risk above 2.9435 in exchange for much less nominal risk below 2.5310.
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Stepping back even further, it’s hard not to acknowledge Mar-Jul’s reversal as a very impressive one. Starting with the market’s gross failure to sustain Mar’s meltdown spasm below the 2.50-area that supported the market for a year-and-a-half and then recovering above 16-Jan’s 2.8860 major corrective high that, in fact, broke Dec’17 – Mar’20’s major bear trend, this reversal has been an impressive one indeed that easily could have further (5th-Wave) gains ahead depending on its ability to recoup 2.9435. Threats to the bull include:
- the admittedly short-term momentum failure mentioned above
- the market’s position deep within the middle-half bowels of its massive historical lateral range shown in the monthly log chart below where the odds of aimless whipsaw risk are considered higher, and
- the return to frothy bullish levels (78%) in our RJO Bullish Sentiment Index of the hot Managed Money positions reportable to the CFTC.
In sum, we believe these three reasons, along with the impracticality of a longer-term risk parameter down at 2.5310, warrant a move to a neutral-to-cautiously-bearish stance from current 2.8935-area levels with a recovery above 2.9435 negating this specific call and re-exposing the major bull to at least one more round of new highs above 2.9930. In lieu of such 2.9435+ strength, further lateral-to-lower, and possibly much lower prices should not surprise in the period ahead.
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