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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.
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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 (marketvane.net) 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.
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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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