The extent and impulsiveness of the market’s losses following yesterday’s break below 08-Sep’s key 127.20 low confirms our peak/reversal suspicions discussed in yesterday morning’s Trading Strategies Blog.  This reversal obviously identifies 04-Sep’s 135.45 high as the end of the rally from 15-Jun’s 94.55 low and our key long-term risk parameter the market needs to recoup to negate this pea/reversal count.  For shorter-term traders with tighter risk profiles however, 08-Sep’s 127.20 initial counter-trend low and arguable 1st-Wave of a prospective 5-wave Elliott sequence down serves as our new short-term risk parameter from which non-bullish decisions like long-covers and new bearish exposure can be objectively based and managed.  In maintaining the impulsive integrity of a 5-wave sequence down, we don’t believe this market should be able to get anywhere near 127.20 at this point, let alone take it out.

As discussed yesterday morning, the combination of:

  • the market’s proximity to the upper-quarter of the past couple year’ range amidst
  • historically frothy levels in our RJO Bullish Sentiment Index and
  • an arguably complete 5-wave Elliott sequence up from 15-Jun’s 94.55 low

was and remains a unique and compelling peak/reversal environment and favorable risk/reward opportunity from the bear side.  The daily chart above shows that the market has very quickly retraced exactly 50% (to 115.00) of Jun-Sep’s 94.55 – 135.45 rally.  But in the absence of an accompanying confirmed bullish divergence in momentum, this interesting but merely derived Fibonacci fact is a totally unreliable reason to conclude even an interim bottom.  We anticipate further lateral-to-lower prices in the weeks and perhaps months ahead as the Managed Money community is forced to capitulate historically-skewed long-&-wrong exposure.  This said, the market’s engagement once again of the middle of the middle-half bowels of the past couple years’ range warns of greater odds of aimless whipsaw risk.

These issues considered, a bearish policy and exposure from yesterday’s break below 127.20 recommended in yesterday’s Trading Strategies Blog remain advised with a recovery above 127.20 required to negate this specific call and warrant its cover.  In lieu of sch 127.20+ strength, we anticipate further lateral-to-lower prices foe the foreseeable future and possibly back to the lower-quarter of the past couple years’ range below 96.90.

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