This morning’s break above Mon’s 5.057 high not only reaffirms the developing uptrend, it leaves yesterday’s 4.620 low in its wake as the latest smaller-degree corrective low. Relative to the past month’s impressive recovery, 4.620 is only a minor corrective low, but it could play significantly and acutely in navigating the end of this steep rally.
Given the extent and impulsiveness of Oct-Dec’s decline that we believe is just the initial A- or 1st-Wave of a major topping process, the past month’s not unexpected rebound remains intact as the prospect B- or 2nd-Wave correction within that topping process that could eventually present an outstanding risk/reward opportunity from the bear side. This said however, the market needs to arrest the current clear and present uptrend with a bearish divergence in momentum. After today’s continued rally, a failure below 4.620 will confirm that bearish divergence in mo and reject/define a more reliable high and resistance from which traders can pivot from a current bullish policy and exposure to a bearish one. Per such, this 4.620 level is considered our new short-term but key risk parameter from which an interim bullish policy and exposure can be objectively rebased and managed.
If we’re totally wrong on this peak/reversal count and Oct-Dec’s swoon is just a correction within the still-unfolding secular bull trend from Jun’20’s 1.517 low, then the market would be expected to sustain trendy, impulsive price action higher straight away. A failure below a short-term level like 4.620 won’t necessarily derail such a longer-term bullish count because of its short-term nature, but it would certainly be an early indication of such around which traders can deftly and objectively position for the reversal lower.
On a much broader scale, the weekly log active-continuation chart above shows the past month’s rebound following Oct-Dec’s plunge from 6.466 to 3.536. But until and unless the market takes out Oct’s 6.466 high, this current rebound, as steep and abrupt as it is, still falls within the bounds of a corrective retest of Oct’s high within a broader peak/reversal process. Aug-Sep’20’s 72% retrace from 2.743 to 1.795 is a similar correction within mid-2020’s major base/reversal process that ultimately led to a 326% rally to last year’s high.
The market’s current proximity to the upper-quarter of its massive, multi-year historical lateral range amidst frothy 78%-area levels in the Bullish Consensus (marketvane.net) measure of market sentiment remain as contributing elements to a broader peak/reversal-threat environment. All the market needs at this juncture is a bearish divergence in momentum needed to stem the clear and present uptrend. We will gauge such a divergence around 4.620. Until and unless such weakness is proven, we will likewise not underestimate remaining upside potential, including a resumption of the secular bull trend above 6.466.
These issues considered, a bullish policy and exposure remain advised with a failure below 4.620 required to defer or threaten this call enough to warrant a move to the sidelines by both short- and longer-term traders. In lieu of such sub-4.620 weakness, further and possibly accelerated gains should not surprise.