Posted on Aug 23, 2023, 08:26 by Dave Toth

Overnight’s break below last Thur’s 78.95 initial counter-trend low reaffirms our peak/reversal count discussed in 17-Aug’s Technical Blog and leaves Mon’s 81.75 high in its wake as the latest smaller-degree corrective high this market is now minimally required to recoup to arrest the slide, possibly render the setback from 10-Aug’s 84.89 high a (4th-Wave) correction and re-expose Jun-Aug’s broader uptrend.  Until and unless this market can recoup at least 81.75 and preferably 84.89, further and possibly protracted losses remain expected.

On a broader scale, the peak/reversal threat began with last Thurs bearish divergence in daily momentum below 08-Aug’s 79.90 corrective low.  But the fact that this mo failure also stems from the market’s failure to sustain early-Aug’s “breakout” above 12-Apr’s key 83.53 high and upper boundary of this entire YEAR’S resistance amidst historically frothy levels in our RJO Bullish Sentiment Index warns of developing downside vulnerability on a broader scale.  Additionally, on a weekly close-only basis below, the recovery attempt from 17-Mar’s 66.53 low to 11-Aug’s 83.04 high is clearly only a 3-wave affair to this point.  Left unaltered by a weekly close above 83.04 and/or an intra-day recovery above 84.89, this 5-month recovery attempt easily fits the bill as a mere correction against Jun’22 – Mar’23’s major downtrend and, we believe, new secular bear market.  And given the extent to which the Managed Money community has its neck sticking out on the bull side- 231K longs versus just 53K shorts- fuel for downside vulnerability is in ample supply and could manifest itself by protracted losses straight away.

Lastly and on an even broader scale, the monthly active-continuation chart below shows this market deep, deep, deep within the middle-half bowels of its massive but lateral historical range where the odds of aimless whipsaw risk are still advised to be approached as high, warranting a more conservative approach to directional risk assumption.  Herein lies the importance of identifying tighter but objective risk parameters like 84.89 and even 81.75.

These issues considered, a bearish policy and exposure remain advised with strength above 81.75 required for shorter-term traders to neutralize exposure and commensurately larger-degree strength above 84.89 for longer-term commercial players to follow suit.  In lieu of such strength, further and possibly protracted losses straight away should not surprise.

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