Posted on Nov 02, 2023, 07:39 by Dave Toth
With overnight’s break above 12-Oct’s 130.20 initial counter-trend high, the market has confirmed a bullish divergence in daily momentum and resuscitated the challenge of discerning the recovery from 04-Oct’s 126.62 low as either a slightly larger-degree correction within the 3-year secular bear trend OR the start of a more protracted reversal higher. The 240-min chart below details the past month’s recovery attempt that shows the latest smaller-degree corrective lows at 128.42 from yesterday and 127.18 from 23-Oct. These are the levels the market must now sustain gains above to maintain not only a more immediate bullish count, but one that could morph into a more protracted reversal higher. Failures below these levels will threaten and then negate such an alternate bullish count, render the recovery from 126.62 a 3-wave and thus corrective affair and re-expose the secular bear market. Per such, 128.42 and 127.18 are considered our new mini and short-term parameters from which non-bearish decisions like short-covers and cautious bullish punts can be objectively based and managed.
Thus far, the recovery from 04-Oct’s 126.62 low is clearly only a 3-wave structure. But by breaking above 12-Oct’s 130.20 high, we know that the rally from 23-Oct’s 127.18 low can be one of only two things:
- the completing c-Wave of another bear market correction OR
- the dramatic 3rd-Wave of more protracted move north.
The daily chart below shows the market once again engaging the 130-handle-area that remains a key former support-turned-resistance area after breaking FIVE MONTHS of support back in mid-Sep. IF the past month’s recovery attempt is “just” another correction, we would expect this 130-handle-area to hold as resistance. The 240-min chart above shows the prospective c-Wave up from 127.18 equaling its early-Oct initial rally from 126.62 to 130.20 in length around the 130.76-area. BUT UNTIL this market fails below at least yesterday’s 128.42 low, the trend is clearly up on AT LEAST an intermediate-term scale and should not surprise by its continuance or acceleration straight away. AND IF the rally from 127.18 is the 3rd-Wave of a more protracted reversal higher, then it is now incumbent on the bull to BEHAVE LIKE ONE with sustained, trendy, impulsive and increasingly obvious behavior higher straight away.
On an even broader scale, the weekly chart below shows the magnitude and dominance of the 3-year secular bear market. Today’s bullish divergence in daily momentum is of too small a scale to conclude a base/reversal environment at this juncture. Indeed, commensurately larger-degree strength above 01-Sep’s 133.34 larger-degree corrective high remains required to break the downtrend from even Mar’s 140.30 high, let alone threaten the secular downtrend. Per such, that 133.34 high remains intact as our key long-term bearish risk parameter pertinent to longer-term institutional players. For longer-term players not willing to risk bearish exposure to 133.34, they have the objective option of paring or neutralizing bearish exposure here and now and acknowledging and accepting whipsaw risk back below 126.42 and/or 126.62 in exchange for steeper nominal risk above 133.34.
These issues considered, shorter-term traders have been advised to neutralize bearish exposure and are further advised to consider a cautious bullish stance with a failure below 128.42 threatening this call and further weakness below 126.62 negating it and re-exposing the secular bear that would warrant a return to a bearish stance. Longer-term institutional players are advised to at least pare bearish exposure to more conservative levels with commensurately larger-degree strength above 133.34 required to neutralize remaining exposure and reversing into a new bullish policy.