In 07-Dec’s Technical Blog we discussed the likelihood of a corrective rebuttal to late-Nov/early-Dec’s (suspected initial A- or 1st-Wave) counter-trend decline within a broader peak/reversal process.  Given the magnitude of the secular bull trend from Apr’20’s 9.21 low and the forces behind it that aren’t likely to dissipate quickly, a more extensive (i.e. 61.8% retrace or more) B- or 2nd-Wave corrective rebound was expected.  But a key requirement to navigating the prospective end to this rebound is the requisite bearish divergence in short-term momentum needed to arrest this rebound and reject/define a more reliable high and resistance from which a bearish bet can be objectively based and managed.

While the recent recovery from 02-Dec’s 18.46 low does not look like a labored, 3-wave structure typical of corrections, the 240-min chart below shows the market slightly eclipsing the (19.84) 61.8% retrace of late-Nov’s 20.69 – 18.46 decline and, most importantly, the developing potential for a bearish divergence in short-term momentum.  A failure below Fri’s 19.52 low would render that low an initial counter-trend low and confirm the divergence.  The crucial by-product of such a confirmed mo failure would be the market’s definition of whatever high is left in the wake of that divergence- currently 08-Dec’s 19.90 high- as the prospective END of the recovery from 18.46 and an acute risk parameter from which bearish decisions can be objectively based and managed.  Until at least such sub-19.52 weakness is confirmed, at least the intermediate-term trend is up and should not surprise by its continuance.

On a broader scale, traders are reminded of the compelling peak/reversal elements in place on which our major peak/reversal-threat count are predicated:

  • a confirmed bearish divergence in WEEKLY momentum
  • historically frothy sentiment/contrary opinion levels, and
  • an arguably complete 5-wave Elliott sequence up from not only 31-Mar’s 14.67 low, but possibly going all the way back to Apr’20’s 9.21 low.

If this long-term wave count is accurate, the magnitude of a correction or reversal lower could be extensive, spanning quarters and where even a Fibonacci minim 38.2% retrace doesn’t cut across until the 15-cent-handle-area.  To mitigate this major peak/reversal threat, the market needs to recoup 18-Nov’s 20.69 high and our key long-term risk parameter.

Indeed, the monthly log chart below shows the past 20 months’ magnificent rally that, not surprisingly, has generated the frothiest, most emotional bullish sentiment since that that warned of and accompanied Feb 2011’s massive peak and reversal.  An admittedly mini mo failure below 19.52 will obviously preclude us from concluding a similar fate.  A relapse below 02-Dec’s 18.46 low would be the next reinforcing step for such a massive peak/reversal count.  But what a sub-19.52 failure WOULD do is define a very tight but objective high from which a bearish punts can be objectively based and managed.  And if the broader peak/reversal elements discussed above are true, then this initial punt could provide the start of a bearish position build that could evolve into a major and lucrative opportunity.

These issues considered, a neutral/sideline policy remains advised for the time being, with a failure below 19.52 warranting a new cautious bearish position with a subsequent recovery above 19.90 required to negate this specific call and warrant its cover.  Below 19.52, further and possibly sustained losses would be expected.

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