The market’s clear break yesterday below the past TWO MONTHS’ 3.45-to-3.42-area support reinstates and reaffirms the downtrend from 11-Jul’s high and exposes an area between spot and Aug’16’s 3.15 low that is totally devoid of any technical levels of merit. In other words, there is no support shy of 3.15. This gives the bear a full opportunity to “perform” straight away. The key question now is, “will it?”
Outside of Aug’16’s 3.15 headline low, the other technical levels of merit now exist only ABOVE the market in the form of that now key area of former support-turned-resistance between 3.42-and-3.45, yesterday’s 3.50 smaller-degree corrective high and 06-Sep’s 3.62 larger-degree corrective high that remains our key long-term risk parameter the market needs to recoup to, in fact, break the downtrend from the Jul high.
Per any more immediate bearish count however, this market shouldn’t even come close to yesterday’s 3.50 high and new short-term risk parameter given the magnitude of that 3.42-to-3.45-area support-turned-resistance.
As obvious as the resumption of the 4-month downtrend is, so too is the market’s return to the lower-quarter of the massive 3-YEAR range shown in the weekly chart above and monthly chart below, an area where the bear simply has NOT PERFORMED. And herein lies the importance of the 3.42-to-3.45-area resistance and especially yesterday’s 3.50 admittedly tight but crucial risk parameter.
IF our long-term BASE/reversal count is wrong and Aug’16’s 3.15 low did NOT complete a 5-wave Elliott sequence down from 2012’s 8.49 high, then the resumption of the secular bear market should likely unfold in a trendy, impulsive manner now to new lows below 3.15. Yesterday’s clear break presents the bear with every opportunity to perform. This performance will be gauged specifically by continued trendy, impulsive price action lower to new lows below 3.15. A failure to sustain yesterday’s losses below 3.45 will be the first sign of non-compliance by the bear. Subsequent strength above 3.50 would not only threaten any broader bearish count, but reinforce our broader base/reversal count that would present another outstanding risk/reward opportunity.
Critical to this debate between the prospect for a resumption of the secular bear to new lows below 3.15 and a major base/reversal count is market sentiment. Our proprietary RJO Bullish Sentiment Index is currently at a historically low 33% reflecting 194K Managed Money longs reportable to the CFTC versus a whopping 397K shorts. If you’re bearish this market as you should be for both technical and fundamental reasons, know that you’ve gotta lotta company. And such pessimism is typical of major base/reversal environments and has warned of any accompanied virtually every major base/reversal this market has experienced. This said however, traders are reminded that sentiment is not an applicable technical tool in the absence of a confirmed bullish divergence in momentum needed to, in fact, break the downtrend. Herein lies the importance of identifying an objective risk parameter like 3.50.
The current low, pessimistic sentiment condition can stay low and depressed indefinitely as long as the market simply maintains the simple downtrend pattern of lower lows and lower highs. A recovery above 3.50 would NOT be consistent with this pattern and would immediately resurrect a base/reversal count that could be major in scope. These issues considered, a bearish policy remains advised for longer-term players with a recovery above 3.50 required to threaten this call enough to warrant its cover. Shorter-term traders whipsawed out of bearish exposure following 25-Oct’s bullish divergence in short-term mo are advised to re-establish bearish exposure from 3.41 OB with a recovery above 3.50 required to negate the call and warrant its cover. In lieu of such 3.50+ strength further and possibly accelerated losses should not surprise, including a run at and eventually through Aug’16’s 3.15 low.