Posted on Jul 12, 2023, 07:36 by Dave Toth

This week’s continued gains on the heels of Fri’s break above 21-Jun’s 72.72 high reaffirms our interim bullish count introduced in 05-Jul’s Technical Blog and leaves Mon’s 72.67 low in its wake as the latest smaller-degree corrective high this market would be expected to sustain gains above to maintain the risk/reward merits of a continued bullish policy from current range-center conditions.  As we’ll discuss below, this market has returned to deep within the middle-half black hole of a “ranges-within-ranges” environment that remains rife with aimless whipsaw risk, so tight, conservative but objective directional risk parameters remain crucial to effective navigation.  And if the market cannot sustain this week’s gains above 72.67, it will confirm a bearish divergence in admittedly very short-term momentum, but a failure that would leave the market vulnerable to another intra-range relapse of indeterminable scope that would warrant neutralizing bullish exposure.  If this market has something broader to the bull side in mind that continues to warrant a bullish policy, former 72-72-area resistance from mid-Jun would now be expected to hold as new near-term support.

Stepping back, the daily bar chart above and close-only chart below show the grip that the 83-to-66-range has had on this market for the past SEVEN MONTHS.  Under such rangey circumstances, we advocate a trading range approach of biasing cautiously from the bull side following a bullish divergence in momentum from the range’s lower-quarter, cautiously from the bear side following a bearish divergence in momentum from its upper-quarter and avoiding initiating directional exposure from the range’s middle-half where the risk/reward merits of doing so are abhorrent due the greater odds of aimless whipsaw risk.

Conditions were favorable last week for a cautious bias to the bull side from levels around the lower-71-handle-area, but now that the market as returned to the middle of the range, it is important for the market to sustain its relative trendy, impulsive behavior to the upside in order to maintain a cautious bullish policy.  A failure below 72.67 will threaten this count enough to warrant moving to the sidelines as the next bull risk parameter doesn’t cut across until 28-Jun’s 67.05 low.  

Moving out even further, a factor that contributed to a cautious bullish stance last week from 71-handle-area levels was the drop to a 7-YEAR low of 60% in our RJO Bullish Sentiment Index shown in the weekly close-only chart above.  Combined with the market’s rejection once again of the lower-quarter of the 7-month range that reaffirmed key lows and support from the 68-to-66.50-area, the market was deemed vulnerable to another intra-range rebound to at least its middle-half and possibly to its upper-quarter around the 78-handle-area or higher.

And if the past seven-month range isn’t nasty and frustrating and challenging enough, the monthly chart below shows that this recent lateral chop is a very minor subset deep, deep within the middle-half bowels of this market’s massive but lateral historical range that has constrained it for the past 15 YEARS.  This “ranges-within-ranges” environment remains an extraordinarily treacherous and challenging trading environment that is the bane of trend-followers everywhere as the odds of aimless whipsaw risk remain high.  Under such non-trending conditions, the odds of hitting a directional home run are about as good as the White Sox making it to the World Series.  Per such, trying to hit singles is a preferred risk/reward strategy that includes a more conservative approach to directional risk assumption.  Herein lies the importance of Mon’s 72.67 minor corrective low as a mini parameter from which the risk of an interim bullish policy can be objectively rebased and managed.

These issues considered, a cautious bullish policy and exposure remain advised with a failure below 72.67 required to defer or threaten this call enough to warrant moving to a neutral/sideline position.  In lieu of such sub-72.67 weakness, further lateral-to-higher prices remain anticipated, including a possible run at the range’s upper-quarter around a 78-handle or higher.

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