Posted on Oct 13, 2023, 07:17 by Dave Toth

Overnight’s recovery above 02-Oct’s 151.40 corrective high and our short-term bear risk parameter discussed in Mon’s Technical Webcast confirms a bullish divergence in short-term momentum.  This mo failure defines Tue’s 143.70 low as one of developing importance, the end of at least the downtrend from 19-Sep’s 164.50 larger-degree corrective high, and, for longer-term reasons discussed below, possibly the end of a major 5-wave sequence down from Feb 2022’s 260 high.  While we cannot conclude a broader base/correction/reversal count from proof of only short-term strength above a smaller-degree corrective high like 151.40, we absolutely can conclude the rejected low at 143.70 as our new short-term but key parameter from which the risk of non-bearish decisions like short-covers and bullish punts can be objectively based and managed.

The daily log chart above shows today’s bullish divergence in momentum, but again, this only allows us to conclude the end of the portion of the major bear trend from 19-Sep’s 164.60 larger-degree corrective high and key long-term bear risk parameter.  Indeed, to break even Apr-Oct’s downtrend, commensurately larger-degree strength above 164.50 remains required.

HOWEVER, since the market has thus far failed to sustain late-Sep/early-Oct’s breakdown below a month-and-a-half’s support-turned-resistance around the lower-147-handle, the decline from 19-Sep’s 164.50 high is hard to ignore as the completing 5th-Wave of a textbook-looking and major 5-wave sequence down from 18-Apr’s 204.90 high.  And this entire 6-MONTH sequence may be the completing 5th-Wave of an even more massive 5-wave Elliott sequence that dates from Feb 2022’s 260.45 high weekly close shown in the weekly log close-only chart below.  Combined with waning downside momentum on a WEEKLY basis (the divergence of which would be confirmed above 15-Sep’s 159.25 corrective high weekly close) and historically bearish sentiment/contrary opinion levels, the elements typical of a base/reversal environment are clearly present.  And if correct, the correction or reversal higher could easily be multi-month or multi-quarter in scope where even a Fibonacci minimum 38.2% retrace of the 2022 – 23 decline doesn’t cut across until the 180-area.

Lastly, the monthly log chart below shows the market still deep, deep within the middle-half bowels of its massive but lateral historical range where the odds of aimless whipsaw risk remain high, warranting a more conservative approach to directional risk assumption. Herein lies the importance of identifying tighter but objective directional risk parameters like 19-Sep’s 164.50 high and even Tue’s 143.70 low. Again, we cannot conclude a larger-degree reversal from proof of only short-term strength. But we would remind traders that every larger-degree momentum failure starts with precisely the type of smaller-degree mo failure like that that has been confirmed today.
These issues considered, shorter-term traders have been advised to neutralize bearish exposure and are further advised to consider a cautious bullish stance at-the-market (151.90) with a relapse below 143.70 required to negate this call and warrant its cover. Longer-term commercial players remain OK to maintain a cautious bearish stance until/unless the market recoups 164.50 on an intra-day basis or 159.25 on a weekly close basis. But given the evidence cited above, we suggest even long-term players to pare or neutralize bearish exposure and acknowledge and accept whipsaw risk below 143.70 in exchange for steeper nominal risk above 164.50. In lieu of a relapse below 143.70, further and possibly protracted gains that could span moths should not surprise.

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