Posted on Jul 24, 2023, 06:56 by Dave Toth

Overnight’s break above last week’s 260.75 high reaffirms this month’s uptrend with the important by-product being the market’s definition of Fri’s 246.25 low as the latest smaller-degree corrective low this market would be expected to sustain gains above to maintain a more immediate and perhaps longer-term bullish count.  Its failure to do so will not only confirm a bearish divergence in momentum that would break this month’s impressive rally, but also complete an arguably textbook 5-wave Elliott sequence from 04-Jul’s 224.25 low that could be the completing C-Wave of a major bear market correction.  Until and unless this market weakens below 246.25 however, we have to acknowledge a quite contrary and potentially very bullish construct that suggests the rally from 04-Jul’s 224.25 low is the dramatic 3rd-Wave of a major reversal higher.  In this short-term but very important regard then, Fri’s 246.25 low is considered our new short-term but key risk parameter from which traders can objectively rebase and manage the risk of non-bearish decisions like short-covers and bullish punts.

On a broader scale, it’s easy to see the C-Wave-vs-3rd-Wave debate up from 04-Jul’s 224.25 larger-degree corrective low in the daily log chart above.  IF this market has the 3rd-Wave count in mind, it would be expected to evidence such by pretty much blowing the doors off the upside straight away.  If, alternatively, this month’s rally is the completing C-Wave of a correction within the still-arguable secular bear trend, we would expect upside momentum to falter in the period immediately ahead with a bearish divergence below a level like 246.25.  Indeed, on a commensurately larger-degree scale, the weekly log chart below shows the not unimpressive recovery from 31-May’s 215.25 low still within the bounds of a mere (4th-Wave) correction relative to the backdrop of May’22 – May’23’s massive bear trend.

These issues considered, a bullish policy and exposure remain advised with a failure below 246.25 required to threaten this call enough to warrant moving to a neutral/sideline position.  In lieu of such weakness, further and possibly protracted gains straight away should not surprise.