In Tue’s Technical Blog we discussed the market’s need to produce trendy, impulsive and increasingly obvious price action to the downside to reinforce our preferred count that suggested the decline from 02-Jun’s 241.74 high was the dramatic 3rd-Wave of an eventual 5-wave sequence down from 10-Feb’s 256.90 high within a major peak/reversal process.  The magnitude of the secular bull trend is such that even this week’s exaggerated plunge still falls within the bounds of a major bull market correction.  But until and unless this market arrests this clear and present and developing downtrend with a bullish divergence in momentum AND subsequent and larger-degree basing behavior, we are taking the extent and impulsiveness of this month’s meltdown thus far as consistent with our peak/reversal count that is expected to be major in scope.

The uninterrupted nature of the past few days’ plunge left little in the way of consolidative battlegrounds that we can now look to a tighter ear risk parameter.  Per such and for the time being, we’re sticking with 08-Jul’s 221.75 corrective high as our short-term bear risk parameter.  Given the 3rd-wave-type of decline this week however, we’re confident that this developing downtrend has at least an interim corrective hiccup and resumption of the slide in store before even the potential for a bullish divergence in momentum is created.  After such price action, we’ll be able to objectively trail this short-term bear risk parameter to just above the top of that corrective hiccup.

From a much longer-term perspective, the combination of:

  • a confirmed bearish divergence in WEEKLY momentum amidst
  • historically frothy bullish sentiment/contrary opinion
  • an arguably complete and massive 5-wave Elliott sequence from at least Jun’20’s 94.55 high and
  • the market’s rejection of the upper-quarter of its 11-YEAR historical range

is a unique and compelling one that warns of a peak/reversal environment that could be major in scope.  Again, given the magnitude of the secular bull trend, only a glance at the monthly log chart below is needed to see that this year’s setback thus far remains well within the bounds of a mere BULL market correction.  BUT IF this is the case, the market needs to arrest this clear and present sell-off attempt with a countering bullish divergence in momentum.  Until and unless such a mo failure stems the slide, there is no way whatsoever to know that this market isn’t in the EARLY stages of a major reversal lower that, somewhere along the line and perhaps even starting this week, melts down in a relentless 25%-to-45%-or-more plunge like those that have unfolded the past few months in nat gas, corn, soybean oil, canola, copper, wheat and cotton as the 2020 – 2022 secular bull markets end and reverse.

These issues considered, a bearish policy and exposure remain advised with a recovery above 221.75 still required to threaten this call enough to warrant defensive measures.  And we will be on the watch for a slightly bigger corrective hiccup in the days/week ahead AND a resumption of this downtrend thereafter to identify a smaller-degree corrective high to which this short-term bear risk parameter can be objectively trailed.  In the meantime, further and possibly accelerated losses remain expected.

RJO Editorial Team