With Fri’s poke above 20-Mar’s 28.49 larger-degree corrective high, the daily chart below shows that the market has confirmed a bullish divergence in daily momentum that defines 30-Mar’s 19.27 low as one of obviously developing importance and possibly the END of a 5-wave Elliott sequence down from 06-Jan’s 64.72 high. Per such, this 19.27 low becomes of new key risk parameter from which non-bearish decisions like short-covers and new bullish punts can be objectively based and managed by longer-term players.
This momentum failure satisfies the first of our three key reversal requirements. The second requirement is proof of trendy, impulsive, 5-wave price action in the direction of the new suspected trend. The 240-min chart above shows exactly such behavior, with a failure below Fri’s 23.52 minor corrective low and short-term risk parameter required to stem this recovery and expose at least a (2nd-Wave) correction of this rebound OR a resumption of the secular bear.
To this point, the market has provided enough behavior to threaten the bear trend enough to remove all bearish exposure and circumvent the risk and loss of further gains. The challenge now is determining if a new bullish policy is warranted and where to establish longs that provides favorable and acceptable risk/reward merits. Of course, anxious bulls can jump in anywhere, but the risk of doing so is to 23.52 for shorter-term traders and to 19.27 for longer-term players. Given recent volatility and the wideness of “typical” ranges these days, this risk is unacceptable to us.
Herein lies the importance of our third reversal requirement: proof of labored, corrective, 3-wave behavior on a subsequent relapse attempt. This requirement has yet to be satisfied. This requirement could prove handy given the prospect that the decline from 20-Mar’s 28.49 high to 30-Mar’s 19.27 low is arguably only a 3-wave affair as labeled in the 240-min chart above. This means that that portion of the decline might not be the completing 5th-Wave, but rather a b-Wave “irregular” of a 4th-Wave correction from 20-Mar’s 28.49 high that just ending now and prepping for a final 5th-Wave plunge to new lows below 19.27. In this case, the relapse will NOT be a labored, corrective affair but rather a trendy, impulsive one to new lows.
For ancillary reasons discussed below along with two of our three reversal requirements mentioned above, we suspect the market has bottomed. But we believe prudent positioning for such a reversal requires the market weathering a corrective retest of 30-Mar’s low.
Ancillary evidence reinforcing a major base/reversal count includes:
- historically bearish sentiment and
- and “outside WEEK” last week (higher high, lower low and higher close than the previous week’s range and close).
COMBINED with the momentum failure and arguably complete wave sequence down from the Jan high, this market checks most of the boxes we look for in a major base/reversal environment. And if this is the case, then the market must, by definition, unfold in labored, corrective, 3-wave-type patterns on relapse attempts.
These issues considered, all previous recommended bearish policy and exposure has been nullified as a result of Fri’s recovery above 28.49 that comes on the heels of Thur’s smaller-degree momentum failure above 25.24. As for initiating a new bullish policy however, traders are advised to wait for and require proof of 3-wave corrective behavior on a relapse attempt that also must bottom at some level above 30-Mar’s 19.27 key low and new long-term risk parameter. “Better bein’ out, wishin’ you were in, than in, wishin’ you were out”.