Posted on Mar 02, 2023, 06:58 by Dave Toth

In our past three updates, we’ve discussed the developing, if suspected-interim base/correction count up from 22-Feb’s 2.113 low.  By virtue of the past couple days’ continuation of this recovery, the 240-min chart below shows that the market has identified Tue’s 2.568 low as the latest smaller-degree corrective low this market now must sustain gains above to maintain a more immediate bullish count.  Its failure to do so will confirm a bearish divergence in short-term momentum and END what appears to be a nice 5-wave rally up from 22-Feb’s 2.113 low.  Per such, we’re defining 2.568 as our new short-term risk parameter from which traders can objectively base non-bullish decisions like long-covers and cautious bearish punts.

The reason we point out the prospect that the past week’s rally looks to be a 5-wave structure is because corrections are not 5-wave affairs, they are 3-wave structures.  This means that if the market confirms a bearish divergence in short-term mo below 2.568, we’d only be able to look at the rally from 2.113 as the initial A-Wave of an eventual 3-wave correction that’s got further to go.  A relapse below 2.568 would have to be approached as only the B-Wave portion of the correction ahead of at least one more (C-Wave) recovery attempt.

This is all according to Elliott Wave “theory” from which markets sometimes veer, but we mention this to give traders an idea of what could be some labored, choppy, volatile, aimless and challenging price action in the days and perhaps even weeks ahead.  The forces that have driven the past six months’ $7.97, 79% meltdown in nat gas prices aren’t likely to evaporate into thin air quickly, but rather over TIME and what could be agonizingly choppy and frustrating price action that, we believe, will include at least one more (5th-Wave) decline to new lows below 2.113 in the Apr contract and/or below that day’s 2.057 low on an active-continuation basis.  To threaten this still-major bearish count, weeks, if not months of basing behavior would be required.

The daily log chart of the Apr contract (above) and weekly log active-continuation chart (below) show the magnitude of Nov-Feb’s (suspected major 3rd-Wave) plunge that we believe is now yielding to a (suspected 4th-Wave) correction as a very early part of the major slowdown of the bear and long-term BASE/reversal PROCESS that could span months or even quarters.  As recently discussed, the so-called “easy (i.e. trending) money” is behind us.  For what could be months or even longer, we anticipate a sort of 2-steps-down-1-step-up environment that will be a challenge to traders and trend-followers.

Reiterating, the base/correction elements include:

  • a confirmed bullish divergence in daily momentum
  • a textbook complete 5-wave Elliott sequence down from 23-Nov’s 5.403 high in the Apr contract (8.177 on an active-continuation basis)
  • historically bearish levels in the Bullish Consensus ( measure of market sentiment/contrary opinion
  • an “outside day up” the day of 22-Feb’s 2.113 low, and last but certainly not least…..
  • the market’s engagement of the lower-quarter of its massive but lateral historical range shown in the monthly log active-continuation chart below.

This is a unique and compelling list of base/correction/reversal-threat factors that has thus far defined 22-Feb’s 2.113 low as THE KEY low and longer-term risk parameter from which even longer-term commercial players are advised to base non-bearish decisions like short-covers in order to circumvent the heights unknown of a suspected 4th-Wave correction that may be slight relative to the magnitude of Nov-Feb’s plunge but nominally steep.  Indeed, the daily chart (above) shows that the 38.2% and 50% retraces of Nov-Feb’s 5.403 – 2.113 decline don’t cut across until the 3.02 and 3.38-areas, respectively.

These issues considered, a neutral-to-cautiously-bullish policy remain advised with a failure below 2.568 required for shorter-term traders to move back to a neutral-to-cautiously-bearish stance and for longer-term commercial players to stand aside.  In lieu of at least a relapse below 2.568, further gains remain expected.  And needless to say, a relapse below 22-Feb’s 2.113 mitigates this base/correction/reversal count and reinstates the major bear trend to indeterminable lows thereafter.

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