Posted on Apr 27, 2023, 07:54 by Dave Toth
After poking above 14-Apr’s 1.1115 high and reaffirming a major uptrend that is now a full seven months in length, the bull’s deliberate behavior remains a little disconcerting. The key takeaway from this latest spate of strength is the market’s definition of 17-Apr’s 1.0947 low as the latest smaller-degree corrective low we believe this market must stay above to maintain a more immediate bullish count. Its failure to do so won’t negate the 7-month uptrend, but it would question the risk/reward merits of a continued bullish policy and exposure enough to warrant even longer-term institutional traders to pare or neutralize exposure in order to circumvent the depths unknown of a correction or reversal lower. Per such, we’re defining 1.0947 as our new short-term but key risk parameter from which both short- and long-term traders can objectively rebase and manage the risk of a still-advised bullish policy and exposure.
Stepping back, for the past month or so we’ve discussed the uncertainty over whether the initial 5-wave rally from 28Sep22’s 0.9592 low ended with 02-Feb’s 1.1059 high OR if the resume rally from 08-Mar’s 1.0527 low is the completing 5th-Wave. The implications of both counts are considerable.
If the initial 5-wave rally ended at 1.1059, then that would suggest that 08-Mar’s 1.0527 low completed the major B- or 2nd-Wave correction of Sep-Feb’s major A- or 1st-Wave rally. By resuming Sep-Feb’s rally with this month’s break above 1.1059, the major C- or 3rd-Wave UP is exposed. And given the magnitude of this count, the market’s upside potential would be expected to be explosive and relentless straight away and in a reversal prospect that could span YEARS.
The deliberate, waning-upside-momentum manner in which this market has inched higher the past four weeks is hardly explosive. Rather, this is the type of behavior we’d expect towards the END of a move. A failure below 1.0947 will absolutely confirm a bearish divergence in momentum. but such a mo failure would only allow us to conclude the end of the rally from 08-Mar’s 1.0527 low, NOT the entire rally from last Sep’s 0.9592 low. To break the 7-month uptrend, understandably commensurately larger-degree weakness below 08-Mar’s 1.0527 larger-degree corrective low remains required to confirm a major correction of the 7-month rally that could produce significant losses back to the 1.02-area or lower.
What the market might have in store for us between 1.0947 and 1.0527 is anyone’s guess. And given the impractical and sub-optimal nature of that 1.0527 threshold as a decision-making point, even for long-term institutional traders, we believe the only pertinent directional flexion point and risk parameter at this juncture is 1.0947.
These issues considered, a bullish policy and exposure remain advised with a failure below 1.0947 required for both short- and long-term traders to move to at least a neutral if not cautiously bearish stance. In lieu of such weakness, further and possibly accelerated gains straight away should not surprise.