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Posted on Jul 28, 2022, 09:36 by Dave Toth
Yesterday’s break above last Fri’s 4016 high reaffirms our interim bear market rally count introduced in 24-Jun’s Technical Blog, with the very important by-product being the market’s definition of smaller- and larger-degree corrective lows at 3913 from Tue and 3723 from 14-Jul as the levels this market now needs to sustain trendy, impulsive gains above in order to maintain a more immediate bullish count. Its failure to do so will threaten and then negate this interim bullish count and re-expose the secular bear trend. Per such, we’re defining these levels as our new short- and longer-term risk parameters from which non-bearish decisions like short-covers and bullish punts can be objectively rebased and managed.
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IF a more protracted (2nd-Wave) correction of Jan-Jun’s entire 48008 – 3639 (1st-Wave) decline is what the market has in mind for the next month or so, this now-six-week recovery is at a stage where it should start to ACCELERATE HIGHER in a more trendy, impulsive manner. We say and require this because, to this point, the thus-far-labored recovery from 17-Jun’s 3639 low has only unfolded into a 3-wave structure. Moreover, it is only now engaging an interesting and neighborly pair of Fibonacci retracement and progression relationships at 4035 and 4048 where any bearish divergence in momentum below a corrective low like 3913 could resurrect the broader bear.
In the daily log chart below, 4048 is the 38.2% retrace of Jan-Jun’s entire 4808 – 3639 decline. In the 240-min chart above, the prospective C-Wave rally from 14-Jul’s 3723 low (of a bear market correction) has equaled (i.e. 1.000 progression) mid-to-late-Jun’s initial A-Wave rally from 3639 to 3950, a typical progression relationship for corrections. Alone, we never put any stock into merely “derived” technical levels like Fibs. BUT COMBINED with a rally-stemming bearish divergence in momentum, they raise the odds of a trend change. Per these two Fib levels, Tue’s admittedly tight corrective low and risk parameter at 3913 is very important, the failure below which would threaten our interim bullish count.
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On a longer-term basis and as discussed the past month or so, the weekly log chart above shows:
- he developing potential for a bullish divergence in momentum
- an arguably complete 5-wave Elliott sequence down from Jan’s 4808 high and
- the return to historically bearish sentiment levels not seen in at least two years.
Combined with at least the intermediate-term trend being up, further and possibly accelerated gains should not surprise straight away.
From an even longer-term quarterly log scale perspective below however, long-term players and investors are reminded that the massive peak/reversal/new bear market elements we’ve been discussing since late-Jan remain intact:
- a bearish divergence in monthly momentum
- historically frothy sentiment levels
- historically high equity and equity-to-cash portfolio levels
- the massive flattening to near inversion in the 10s – 30s yield curve, and
- an unheard of “outside QUARTER down” (higher high, lower low and lower close than 4Q21’s range and close).
This is a unique, compelling and massive list of technical factors that have warned of and accompanied the last major correction from 2018-to-2020 and both the 2007 – 2009 and 2000 – 2002 major bear markets. To negate our call and count for a major new multi-year bear market, nothing short of the market’s recovery above Jan’s 4808 high will suffice. And against this long-term peak/reversal backdrop, recovery attempts like the one we’re anticipating now are advised to first be approached as bear market corrections and major selling/total stock liquidation opportunities.
These issues considered, an interim bullish policy and exposure remain advised with a failure below 3913 required for shorter-term traders to neutralize exposure and for longer-term players and investors to pare exposure to more conservative levels. In lieu of such weakness, further and possibly accelerated gains are expected straight away.
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