Posted on Sep 05, 2023, 09:14 by Dave Toth

Fri’s break above 10-Aug’s 84.89 high confirms the continuation of this year’s broader base/correction count discussed most recently in 30-Aug’s Trading Strategies Blog and leaves smaller- and larger-degree corrective lows in its wake at 85.02 and 77.59 that serve as our short- and long-term parameters from which the risk of a resumed or continued bullish policy and exposure can be objectively rebased and managed.

The daily log chart above shows the past week-and-a-half’s continuation of this year’s recovery from 20-Mar’s 64,36 orthodox low that nullifies 23-Aug’s bearish divergence in momentum and reaffirms at least a major correction of Jun’22 – Mar’23’s downtrend.  As the rally from 24-Aug’s 77.59 low could be the completing 5th-Wave of an Elliott sequence up from 12-Jun’s 66.80 low that could complete a major 3-wave and thus corrective structure up from the Mar low, longer-term commercial players will want to focus on 24-Aug’s 77.59 larger-degree corrective low as a hugely important bull risk parameter.  A failure below 77.59 will not only break the uptrend from the Jun low, but also may complete a 3-wave correction that may then expose a resumption of 2022’s major downtrend that preceded it.

Per this bear market correction count, it may also prove notable that this year’s recovery is only now nearing the Fibonacci minimum 38.2% retrace of Jun’22 – Mar’23’s 120.47 – 66.53 decline on a weekly close-only basis below.  Alone, this merely derived Fib relationships means little.  But COMBINED with a momentum failure and textbook 5-wave rally from 12-Jun’s 66.80 low and it could prove to be reinforcing evidence to a peak/reversal of this year’s recovery attempt and expose a resumption of last year’s major downtrend.

Such a larger-degree momentum failure below 77.59 will also bring into play the sentiment/contrary opinion fact that our RJO Bullish Sentiment Index is once again at frothy (83%-area) levels typical of broader peak/reversal-threat environments.

Lastly and on an even broader scale, the monthly log chart below shows the market smack in the middle of the middle-half bowels of its massive but lateral historical range where the odds of aimless whipsaw risk are approached as higher, warranting a more conservative approach to directional risk assumption.  Herein lies the importance of even a shorter-term risk parameter like 80.88.

These issues considered, a bullish policy and exposure remain advised with a failure below at least 85.02 and preferably 77.59 required to pare and/or neutralize bullish exposure commensurate with one’s personal risk profile.  In lieu of such weakness, further and possibly accelerated gains remain expected.

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