Posted on Oct 11, 2023, 07:07 by Dave Toth
Overnight’s break below 07-Sep’s 85.16 initial counter-trend low and our key bull risk parameter confirms a broader peak/correction/reversal count we introduced following 07-Sep’s bearish divergence in short-term momentum below 86.11 and reiterated in yesterday’s Technical Blog. This break below 85.16 confirms a bearish divergence in WEEKLY momentum that reinforces a wave count that contends that 01-Sep’s 90.00 high is the END of a major 5-wave Elliott sequence from 27-Jun’s 76.81 low and possibly the end of an even broader 3-wave sequence that dates from Oct’22’s 71.16 low weekly close.
The resulting by-products of today’s sub-85.16 break is the market’s definition of smaller- and larger-degree corrective highs at 88.76 and 89.89 detailed in the 240-min chart below. These are the corrective highs this market is now required to recoup to threaten and then negate a bearish count that could be protracted in scope. Per such, these levels represent our new short- and long-term parameters from which the risk of a new bearish policy and exposure can be objectively based and managed by short- and long-term traders, respectively.
On a broader scale, the daily log chart above shows today’s confirmation of a bearish divergence in momentum that has been waning for over two months. This chart also shows the completed 5-wave Elliott sequence from 27-Jun’s 76.81 low. By breaking below 85.16, the decline from 28-Sep’s 89.89 high can be one of only two things: the C-Wave of a broader BULL market correction or the dramatic 3rd-Wave of a major reversal lower. Given:
- the market’s rejection thus far of the upper-quarter of the past year-and-a-half’s range shown in the weekly log close-only chart below
- a bearish divergence in WEEKLY momentum, and, perhaps most importantly,
- a historically frothy level of 85% in our RJO Bullish Sentiment Index,
we believe odds favor a 3rd-wave-down reversal that would be expected to produce steep, even relentless losses straight away.
Indeed, this 85% reading in our RJO BSI, reflecting a whopping 66K Managed Money long exposure reportable to the CFTC versus only 11K shorts must be considered fuel for downside vulnerability if/when the overall market forces the capitulation of this increasingly risky and costly bullish skew. Until/unless threatened by a recovery above at least 88.76 and especially 89.89, a sharp return to at least the middle of the past year-and-a-half’s range, if not its lower-quarter should not come as a surprise in the months and quarters ahead.
If there’s a caveat to this bearish call (and there’s always a caveat in futures trading and market technicals), it’s the market’s position still deep, deep within the middle-half bowels of its massive but lateral historical range shown in the monthly log chart below. This “condition” remains a consideration for continued aimless whipsaw risk like this market has endured for the past YEAR, warranting a more conservative approach to directional risk assumption. Herein lies the importance of identifying corrective highs and risk parameters like we’ve done at 88.76 and 89.89.
These issues considered, a bearish policy and exposure remain advised for shorter-term traders with a recovery above 88.76 required to negate this call and warrant its cover. Longer-term commercial players have been advised to move to a new bearish stance as a result of the break below 85.16 with a recovery above 89.89 required to negate this call and warrant its cover ahead of what would then be the expected resumption of the past year’s uptrend. In lieu of strength above these levels, further and possibly protracted losses that could span months or quarters are expected.