Posted on Oct 21, 2022, 07:43 by Dave Toth

Overnight’s slip below 11-Oct’s 18.35 minor corrective low and mini risk parameter discussed in 12-Oct’s Technical Webcast confirms a bearish divergence in very short-term momentum.  This mo failure is of way too small a scale to conclude anything more than another iterative (perhaps 4th-Wave) corrective hiccup within the past month’s larger-degree recovery.  But it IS sufficient to identify 12-Oct’s 18.94 high as one of developing importance and THE level this market now required to recoup to resurrect and reaffirm a broader bullish count.  Per such, we’re defining 18.94 as our new mini risk parameter from which short-term traders with tighter risk profiles can objectively base non-bullish decisions like long-covers and cautious bearish punts.

Moving out to the next larger scale, 22-Sep’s 18.03 high remains intact as our short-term bull risk parameter this market is required to break to jeopardize the impulsive integrity of a broader bullish count.  Counting up from 19-Sep’s 17.19 low, that 18.03 level is either the 1st-Wave of an eventual 5-wave Elliott sequence up or the A-Wave of a 3-wave correction within a major peak/reversal count.  To maintain the former bullish count, the market needs to stay above 18.03.  It’s failure to do so will flip the script to a resumed broader bearish count.  In effect, we believe this market has identified 18.03 and 18.94 as short-term but pivotal levels around which directional biases and exposure can be objectively toggled commensurate with one’s personal risk profile.

As for today’s admittedly mini momentum failure as a “warning to beware” of possible further weakness and vulnerability however, it’s notable that 1) last week’s 18.94 high was just three ticks away from the (18.91) 50% retrace of Apr-Sep’s entire 20.63 – 17.19 decline and 2) the coffee and coffee and cotton components of the softs complex have reaffirmed major bear trends.  We’re not making a stand on the exact correlations between these softs markets, but these birds of a feather often times flock together, perhaps due to black box algorithmic trading systems.  These two points may come into play more if/when sugar fails below 18.03 or will be of no matter if it recovers above 18.94.

Lastly and on an even longer-term weekly log close-only basis, the chart below shows flagging price action over the past YEAR.  On the heels of the secular bull trend from Apr’20’s 9.81 low, all of this lateral chop thus far easily falls within the bounds of a mere correction ahead of a vibrant, impulsive, possibly explosive (5th-Wave) resumption of the secular bull trend.  But f this is the case, then somewhere along the line the bull needs to BEHAVE LIKE ONE with trendy, impulsive and increasingly obvious behavior to the upside.  Per such this requirement will be satisfied with the market rebuffing the past week’s slide, confirming it as another correction and resume the past month’s rally with a clear recovery above 18.94.  Further weakness and erosion below 18.03 will not only threaten such a longer-term bullish count, but could be the next reinforcing factor in a multi-quarter PEAK/reversal process that would expose potentially massive losses below this year’s lower-to-mid-17-handle-area lows and support.

These issues considered, traders are advised to toggle directional biases and exposure around 18.94 and 18.03 commensurate with their personal risk profiles.

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