Posted on Apr 12, 2023, 09:27 by Dave Toth

Today’s break above last week’s 81.81 high nullifies a bearish divergence in very short-term momentum and reinstates the impressive, impulsive recovery from 20-Mar’s 64.36 low.  This resumed strength leaves yesterday’s 79.37 low in its wake as the latest smaller-degree corrective low this market is now required to sustain gains above to maintain a more immediate bullish count.  Its failure to do so will confirm a bearish divergence in short-term momentum and possibly complete a textbook 5-wave Elliott sequence up from 64.36 that might then be prone to a more protracted correction lower.  Per such, we’re defining 79.37 as a tight but effective parameter from which a bullish policy and exposure can be objectively rebased and managed by both short- and longer-term traders.

More importantly, from a longer-term perspective, the rally from 20-Mar’s 64.36 low has, this morning, taken out 18-Jan’s 82.66 larger-degree corrective high.  This confirms a bullish divergence in WEEKLY momentum that, in fact, breaks the 9-month downtrend from Jun’22’s 123.68 orthodox high and exposes a larger-degree correction or reversal higher.  Combined with a 6-1/2-YEAR low in the Bullish Consensus ( the week of 20-Mar’s 64.36 low, today’s bullish divergence in weekly momentum confirms the broader base/correction/recovery count we introduced in 27-Mar’s Technical Blog.  The Fibonacci fact that this recovery stems from the immediate area around the (65.09) 50% retrace of 2020 – 2022’s entire rally from 6.50 to 123.68 adds extra gravy to this base/correction/reversal count.

The extent and 5-wave impulsiveness of the past three weeks’ recovery leaves 20-Mar’s 64.36 low as the obvious and key long-term bull risk parameter the market needs to relapse below to negate a broader base/correction/reversal count and resurrect the secular bear trend.  As a suspected initial counter-trend A- or 1st-Wave rally up from that low however, traders must now be on the lookout for that B- or 2nd-Wave corrective rebuttal that is typical of most base/reversal environments, especially with a noticeable gap opened from 03-Apr’s gap-up open.  We are not of the camp that contends that all gaps must be “closed” somewhere along the line.

Indeed, in the more dramatic 3rd- or C-waves of a move, gaps often times remain open and go to the strength and power of such a trend.  “Early” in a basing process however, where the factors that have driven the major bear trend have not yet had the TIME to fully erode, it’s common for a market to correct/rebut the initial counter-trend rally.  Herein lies the importance of the tight but objective short-term risk parameter defined by yesterday’s 79.37 low, the failure below which will arrest the current uptrend and expose such a relapse that could be relatively extensive.  Until and unless such weakness is confirmed however, the trend is up on all practical scales and should not surprise by its continuance.

Finally and on an even longer-term scale, the monthly log chart below shows this market to be deep, deep within the middle-half bowels of its massive but lateral historical range, where the odds of aimless whipsaw risk are approached as higher.  The risk/reward metrics of a longer-term directional bet from such environs is poor, warranting a more conservative approach to directional risk assumption.  Again, herein lies the importance of tighter but objective risk parameters like 79.37.

As a result of the confluence of momentum, sentiment , wave and Fibonacci factors cited above, a correction or reversal higher could span months and produce gains indeterminably higher.  But if this market cannot sustain recent gains above 79.37, it may provide a much preferred and more favorable risk/reward buying opportunity from levels around the 75-handle-area or lower.

These issues considered, a neutral-to-cautious-bullish policy and exposure are advised with a failure below 79.37 required to defer or threaten a new bullish policy enough to warrant moving to a neutral/sideline position to circumvent the depths unknown of a suspected correction of the suspected initial counter-trend rally from 20-Mar’s 64.36 low.  In lieu of such sub-79.37 weakness, further and possibly accelerated gains should not surprise.

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