This morning’s recovery above 16-Sep’s 12.48 initial counter-trend high confirms a bullish divergence in daily momentum that defines 12-Sep’s 11.74 low as one of developing importance and possibly the end of a major bear trend. This 12.48+ spike leaves Thur’s 11.92 low in its wake as the latest smaller-degree corrective low this market is now required to sustain gains above to maintain a more immediate bullish count. Its failure to do so will render the recovery from 12=Sep’s 11.74 low a 3-wave and thus corrective affair that would then resurrect the major bear trend. Per such, this 11.92 level is considered our new short-term but pivotal risk parameter from which non-bearish decisions like short-covers and cautious bullish punts can be objectively based and managed.
The daily chart above shows the bullish divergence in momentum that has thus far stemmed the major bear trend. But given the magnitude of the long-term bear market, the past week-and-a-half’s rebound is thus far of too small a scale to conclude anything more than another correction ahead of a resumption of the secular bear. Commensurately larger-degree strength above 30-Jul’s 13.25 larger-degree corrective high and key risk parameter remains arguably required to break even this year’s downtrend, let alone the secular bear shown in the weekly log chart of the mar contract below.
HOWEVER and as recently discussed, both measures of market sentiment/contrary opinion we monitor closely- the Bullish Consensus (marketvane.net) and our RJO Bullish Sentiment Index- have been wallowing around historically pessimistic levels not seen in at least 16 YEARS. Combined with a bullish divergence in even daily momentum, the extent to which market sentiment is skewed to the bear side warns of potentially tremendous upside vulnerability.
Can we CONCLUDE a major base/reversal environment after just a week-and-a-half’s rebound? Of course not. BUT, the market has been accommodative in identifying a specific level at 11.92 from which the risk of any bullish hedges or punts can be objectively based and managed. If the market fails below 11.92, the major bear is likely to resume. Until such sub-11.92 weakness is shown however, and in lieu of commensurately larger-degree strength above 13.25, traders are advised to not underestimate the extent to which this market might now be vulnerable to higher prices.
These issues considered, traders are advised to move to a new cautious bullish policy from at-the-market (12.40) OB with a failure below 11.92 required to negate this specific call and warrant its cover. In lieu of such sub-11.92 weakness, further and possibly shocking gains could lie ahead as part f a major base/reversal environment.