In Tue’s Technical Blog we discussed a bullish divergence in very short-term momentum that identified last Fri’s 3807 low as one of developing importance and a short-term risk parameter from which shorter-term traders with tighter risk profiles could objectively base non-bearish decisions like short-covers and cautious bullish punts. We also noted that, against the backdrop of the major bear trend, commensurately larger-degree strength above 18-May’s 4095 larger-degree corrective high and key risk parameter remained required to threaten or break the downtrend from 29-Mar’s 4631 high. This morning’s continued recovery above 4095 confirms this divergence and exposes at least an intermediate-term correction higher and possibly a more protracted recovery.
As a result of this continued improvement, the 240-min chart below shows 20-May’s 3807 low clearly as one of developing importance and a longer-term risk parameter from which longer-term players can objectively base non-bearish decisions like short-covers in order to circumvent the heights unknown of a larger-degree correction or possibly a more significant reversal higher.
From a short-term perspective, Mon’s 3982 high is considered a prospective 1st-Wave high of a more protracted Elliott sequence higher and a level this market is expected to sustain gains above to maintain a more immediate bullish count. A failure below 3982 would jeopardize the impulsive integrity of a more immediate bullish count, render the recovery from 3807 a 3-wave and thus corrective affair and re-expose the major bear trend. Per such, this 3982 level serves as our new short-term risk parameter from which shorter-term traders with tighter risk profiles can objectively rebase and manage non-bearish decisions like short-covers and bullish punts.
On a broader basis, the daily log chart above shows today’s confirmed bullish divergence in momentum that arguably breaks the downtrend from 29-Mar’s 4631 high. Given the magnitude of even the portion of the major bear trend from 29-Mar’s 4631 high, let alone this YEAR’S 20% drawdown from 04-Jan’s 4808 high, it would be premature to conclude this week’s recovery as anything more than a slightly larger-degree bear market correction. Indeed, the market remains below FOUR MONTHS of former 4129-to-2412-area support that, since demolished in early-May, cannot be ignored as an equally major resistance candidate. Nonetheless, the trend is up on at least an intermediate-term basis and should not surprise by its continuance or acceleration until and unless arrested by a countering bearish divergence in momentum.
As the market has yet to provide anywhere near the evidence required to rebut nearly five months of bearish action, longer-term players and investors are advised to first approach this recovery as a larger-degree bear market correction and another selling opportunity. Herein lies the importance of a prospective bearish divergence in momentum needed to stem this recovery.
If, alternatively, last Fri’s 3807 low completed a major bull market correction, today’s confirmed bullish divergence in momentum above 4095 satisfied only the first of our three key reversal requirements. Additional proof of trendy, impulsive 5-wave behavior up (second reversal requirement) and especially proof of 3-wave corrective behavior on a subsequent rebuttal to this week’s rally (third reversal requirement) remain required before betting on a longer-term bullish count can be considered an objective one.
In sum, the short-term trend is up within the still-arguable long-term downtrend. Nonetheless, by confirming a bullish divergence in daily momentum above 4095, the market has deferred or threatened a more immediate bearish count enough for even longer-term institutional players and investors to move to a neutral/sideline position to circumvent the heights unknown of a correction or reversal higher. A failure below 3982 will be considered the first threat to a broader recovery to the point of shorter-term traders moving from a neutral-to-cautiously-bullish stance to a neutral/sideline position. And obviously, a relapse below 3807 reinstates the major bear trend that would warrant resumed bearish policies by both short- and long-term players. In the meantime, we will be watchful for a recovery-stemming bearish divergence in short-term momentum that will expose at least a corrective relapse and possible the resumed secular bear, rejecting/defining a more reliable high and resistance from which the risk of a resumed bearish policy can be objectively rebased and managed.