Posted on Oct 03, 2023, 08:27 by Dave Toth

For the past 11 frustrating months, we’ve had to deal with aimless whipsaw risk typical of the middle-half bowels of a range like that shown in the weekly log chart below.  As a result of yesterday’s break to new 2-month lows, only 24-May’s 3.5450 low stands in the way of what could be a severe resumption of Mar-Jul’22’s initial (A- or 1st-Wave) decline within a massive multi-quarter peak/reversal process dating from Mar’22’s 5.0395 all-time high.  Contributing to this long-term peak/reversal count is the mere 3-wave and thus corrective structure of Jul’22 – Jan’23’s recovery attempt from 3.1315 to 4.3025.  Left unaltered by a recovery above 4.3025, this 6-month, 3-wave recovery attempt remains intact as a major (B- or 2nd-Wave) correction ahead of an eventual (C- or 3rd-Wave) meltdown to levels potentially well below last year’s 3.1315 low.  A resumption of this year’s downtrend to new lows below 3.5450 will reinforce this bearish cal.

On an even broader scale and as we’ve discussed since Jun of last year, the:

• bearish divergence in MONTHLY momentum
• market’s gross failure to sustain all-time highs above 2011’s 4.6495 high
• understandably historically frothy bullish sentiment, and
• the extent and 5-wave impulsiveness of Mar-Jun’22’s counter-trend plunge

warn that last year’s decline was just the INITIAL (A- or 1st-Wave) of a massive peak/reversal process.  Jul’22 – Jan’23’s mere 3-wave and thus corrective recovery attempt is totally consistent with this major bearish count.  And while a break below May’s 3.5450 low will still leave last year’s 3.1315 low ahead of it as a key support candidate, the onus will then be on the bull to recoup recent corrective highs to threaten and then negate a count calling for a dramatic and unrecoverable 3rd-Wave meltdown.

With this week’s break below last week’s 3.6240 intra-day low, both the 240-min chart below and daily log close-only chart above shows the continuation of the past two months’ downtrend.  While 24-May’s 3.5450 intra-day low and that day’s 3.5655 low close remain intact, we have to acknowledge the possibility of yet another intra-range rebound within the incessant range that has imprisoned this market for 11 months.  But given that this week’s decline leaves smaller- and larger-degree corrective highs in its wake at 3.7860 and 3.9085 however, these levels serve as the short- and longer-term bear risk parameters the market now is required to recoup to defer or threaten a broader bearish count and perpetuate the lateral range.  Until and unless such strength is shown, and especially if the market breaks the 24-May lows, further and possibly steep, relentless losses may result.

These issues considered, a bearish policy cautious enough to absorb risk to 3.7860, perhaps via options, is advised, with a recovery above 3.7860 required to neutralize this position.  In lieu of such strength and especially following a break below 3.5450, further and possibly prolonged, multi-month or even multi-quarter weakness to levels below 3.13 should not surprise.