Posted on Jul 18, 2023, 07:40 by Dave Toth

The market’s gross failure to sustain early-Jul losses below key former support-turned-resistance around the 132.20-to-132.50-area and recovery above 05-Jul’s 133.68 smaller-degree corrective high and our mini bear risk parameter certainly breaks the late-Jun/early-Jul downtrend from 27-Jun’s 135.00 corrective high.  Moreover, the 240-min chart below shows that the entire relapse attempt from 20-Mar’s 140.30 high held 02-Mar’s key 130.55 low that mitigates a more immediate bearish count and resurrects a larger-degree correction or base/reversal process that could produce significant gains in the weeks and months ahead.

The 240-min chart below also shows a 5-wave impulsive rally from 10-Jul’s 130.60 low that would be considered as only the initial A- or 1st-Wave of something broader to the bull side.  Today’s continuation of this recovery leaves yesterday’s 132.60 low in its wake as a very minor corrective low the failure below which will confirm a bearish divergence in very short-term momentum and end this current recovery attempt.  In this very short-term regard, this 132.60 level serves as a mini parameter from which shorter-term traders can manage the risk of non-bearish decisions like short-covers and bullish punts.  But because of the 5-wave impulsiveness of the recovery from 130.60, we believe any sub-132.60 relapse will present a favorable risk/reward buying opportunity as that setback would first be approached as a B- or 2nd-Wave corrective rebuttal to this month’s suspected initial (A- or 1st-Wave) rally.

On a broader basis, the daily (above) and weekly (below) charts still show a mountain of price action between the key 130.60/130.55-area lows and support over the past six months and 1Q23’s highs and resistance around the 140-handle-area.  Against this backdrop, it could take months or even quarters before we can discern a major, multi-month bear market consolidation OR a massive base/reversal process on the premise that last week’s 130.60 low might have completed a 5-wave Elliott sequence down from Dec’20’s 178.77 high.  Larger-degree proof of strength above 27-Jun’s 135.00 larger-degree corrective high remains required to reinforce a broader base/correction/reversal process.  But as a result of the extent and impulsiveness of the recovery from 10-Jul’s 130.60 low, we believe the directional risk/reward metrics have shifted from the bear to the bull, warranting a move to at least a neutral/sideline position.

In sum and given that the risk/reward merits of chasing initial counter-trend recoveries are poor, a neutral/sideline position is advised for the time being.  A mini mo failure below 132.60 will break this initial counter-trend rally and expose what we believe will be a corrective rebuttal to this initial recovery that will present a preferred and more favorable risk/reward buying opportunity.  For those who would like to establish a bullish stance currently, the risk of doing so is either very tight at 132.60 or loose at 130.55.

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