Today’s clear break above last week’s 16.62 high reinforces at least an intermediate-term base/reversal count introduced in 04-May’s Technical Blog following last week’s gross failure to sustain losses below the past three months’ support. As a direct result of this resumed strength, the 240-min chart below shows that the market has identified Tue’s 16.335 low as the latest smaller-degree corrective low and new short-term risk parameter it is now minimally required to fail below to stem the recovery from 01-May’s 16.07 low, render it a 3-wave and thus corrective affair and re-expose the second-half of Apr’s downtrend. In lieu of such sub-16.335 weakness there’s no way to know that this rally isn’t the 3rd-Wave of within a broader base/reversal process that we believe could be of a shocking scale.
Readers of our silver blog know that we’ve been scoping for a major base/reversal process for a coupe months now. And as a result of the past week-and-a-half’s rejection of and recovery from the lower-quarter of this year’s range shown in the daily close-only chart above, we believe the odds have shifted back in favor of that base/reversal threat that could be major in scope.
In a nutshell, we believe it’s the simple combination of labored/corrective behavior down from Jul’16’s 21.225 high shown in the weekly log chart below amidst what has recently been the lowest levels on record (dating from 1995) in our proprietary RJO Bullish Sentiment Index of the hot Managed Money positions reportable to the CFTC. It’d be one thing for the sentiment levels to be at and sustain historically low levels if the market was getting its brains bashed in week-in and week-out in a major downtrend. But only a glance at the weekly chart below is needed to see that the long-term trend is anything but down. It’s not up at this juncture either, but relative to Dec’15 – Jul’16’s initial impulsive rally from 13.62 to 21.225 and an exact 76.4% retrace, it’s quite easy to see all of the price action from that 2016 high as “merely corrective” to that initial 2016 rally. And until the market breaks Jul’17’s 15.145 low and very long-term risk parameter, these facts warn us to expect a move to 21.225+ levels before a relapse below 15.145. So the long-term bet, in essence, is risking $1.60 to make $4.47.
Now one can’t conclude a major move higher from admittedly short-term strength above a level like 16.62. But we can absolutely state that until and unless the market weakens below at least 16.335, ANY amount of upside potential is possible, including a run to 21.225+.
Finally, we would remind traders that that early-2016 rally, in fact, ENDED the secular bear trend from 2-11’s 49.82 all-time high, exposing a major, multi-year base/reversal count that warns of AT LEAST a resumption of that 2016 rally to new highs above 21.225 until and unless the market relapses below at least Jul’17’s 15.145 low and, actually, Dec’15’s 13.62 low. Continued strength above 18-Apr’s 17.25 high close will obviously reinforce this base/reversal count.
These issues considered, traders are advised to first approach setback attempts to the past week’s former 16.60-area resistance-turned-support as corrective buying opportunities with a failure below 16.335 required to negate this specific call and warrant its cover. In lieu of such weakness we anticipate further gains that could surprise many in the weeks and perhaps even months ahead.