Posted on Oct 31, 2023, 10:29 by Dave Toth

The market’s relapse today below 24-Oct’s 82.57 low and our short-term bull risk parameter discussed in Fri’s Technical Webcast leaves Fri’s 85.44 high in its wake as the end of what thus far is only a 3-wave recovery from 20-Oct’s 81.51 low as labeled in the 240-min chart below.  Left unaltered by a recovery above 85.44, this 3-wave recovery is considered a corrective/consolidative affair that now warns of a resumption of Sep-Oct’s downtrend that preceded it to eventual new lows below 81.51.  Per such, we’re defining that 85.44 high as our new relatively short-term but key parameter from which non-bullish decisions like long-covers and resumed or continued bearish exposure can be objectively rebased and managed.

Stepping back a bit, traders are reminded that last week’s recovery attempt comes on the heels of a broader peak/reversal process from 01-Sep’s 90.00 high predicated on:

• mid-Oct’s bearish divergence in WEEKLY momentum, breaking Jun-Sep’s uptrend
• Jun-Sep’s complete 5-wave Elliott sequence
• historically frothy levels in our RJO Bullish Sentiment Index
• the market’s rejection of the upper-quarter of the past year-and-a-half’s range (shown in the weekly chart (bottom), and
• Oct’22 – Sep’23’s entire recovery attempt that is only a 3-wave and (inferred) correction that warns of a resumption of 2022’s downtrend that preceded it (also shown in the weekly chart, bottom).

To even defer a resumed bearish count that could be protracted in scope, let alone threaten it, strength above at least Fri’s 85.44 is now required.  And if one considered a daily close-only basis below, a recovery above 07-Sep’s 85.51 initial (prospective 1st-Wave) low remains arguably required to jeopardize the impulsive integrity of a broader bearish count.

The weekly log close-only chart below shows:

• the market’s total rejection of the upper-quarter of the past year-and-a-half’s range
• only 3-wave and thus potentially corrective recovery from Oct’22’s 71.16 low close
• the bearish divergence in weekly momentum, and, perhaps most importantly,
• still-frothy levels in our RJO Bullish Sentiment Index of the hot Managed Money positions reportable to the CFTC.

Indeed, at a frothy 73% reading reflecting 44K longs to just 16.5K shorts, there remains plenty of fuel for downside vulnerability if the overall market forces the capitulation of this long-&-wrong exposure.

The market’s position still deep within the middle-half bowels of the past year-and-a-half’s range remains a deferral or threat to a more immediate bearish count due to the higher odds of aimless whipsaw risk.  But herein lies the importance of a tighter but objective bear risk parameter like Fri’s 85.44 high.

These issues considered, a bearish policy and exposure remain advised for longer-term commercial players with a recovery above 85.44 required to defer or threaten this call enough to warrant neutralizing exposure.  Shorter-term traders whipsawed out of bearish exposure following 23-Oct’s bullish divergence in short-term mo are advised to return to a cautious bearish stance with a recovery above 85.44 required to negate this call and warrant it cover.  In lieu of such 85.44+ strength, further and possibly steep losses straight away should not surprise.