Posted on Feb 14, 2023, 09:06 by Dave Toth

In yesterday’s Technical Webcast we discussed the bullish divergence in short-term momentum above Thur’s 94.97 initial counter-trend high as an early warning of a broader base/correction/recovery count, with the market still needing commensurately larger-degree strength above 03-Feb’s 86.77 corrective high to break Dec-Feb’s 16-cent, 16.5% decline.  Today’s continued rebound above that 86.77 threshold confirms the bullish divergence in DAILY momentum, breaks Dec-Feb’s downtrend and exposes a larger-degree correction higher.  As a result, 07-Feb’s 81.27 low ENDS the slide and now serves as our new longer-term risk parameter from which longer-term commercial players can objectively base non-bearish decisions like short-covers and new bullish punts.

The extent of the market’s upside potential is indeterminable but potentially extreme given the sharp increase in historical volatility over the past six months. For what it’s worth (not much, but it’s somewhat of a gauge), we’ve noted the 50% and 61.8% retraces of Dec-Feb’s 97.40 – 81.27 plunge cutting across at 88.97 and 90.89, respectively.  These merely “derived” technical levels are NOT considered resistance, but rather just “areas of interest” around which to beware a recovery-countering bearish divergence in momentum needed to break this uptrend.

With respect to the market’s upside potential, the fact that sentiment/contrary opinion levels got hammered to at least 2-year lows and, in the case of our RJO Bullish Sentiment Index, levels not seen in over THREE YEARS warns that this market might be vulnerable to a more protracted recovery.  Per such, the market’s upside potential should not be underestimated until/unless a rally-stemming bearish divergence in momentum arrests it.

An ongoing technical and trading challenge is this market’s position still deep within the middle-half bowels of its massive but lateral historical range where the odds of aimless whipsaw risk continue to be approached as high, warranting a more conservative approach to directional risk assumption.  No amount of volatile whipsaw behavior should come as a surprise from these range-center prices.

Drilling down to a short-term scale, the hourly chart below shows last week’s 81.27 low as one of obvious importance as support and a bull risk parameter.  Of the recovery thus far, the portion from Thur’s 82.07 low can only be one of two things: the c-Wave of what would be a muted bear market correction OR the dramatic 3rd-Wave of a more protracted reversal higher.  Per this latter, more bullish count, last Thur’s 84.97 high would be considered the smaller-degree 1st-Wave of an eventual 5-wave sequence up, and a level this market should probably be able to sustain gains above in order to maintain the impulsive integrity of such a broader bullish count.  We won’t conclude a broader bullish count as being dead in the water if the market relapses below 84.97, but for short-term traders looking for a bull risk parameter tighter than last week’s 81.27 low, 84.97 is the best we can find at this juncture.

These issues considered, a bullish policy and exposure remain advised for shorter-term traders with a relapse below at least 84.97 and preferably 81.27 required to threaten and then negate this count to the point of paring and then neutralizing exposure.  Longer-term commercial players have been advised to neutralize remaining bearish exposure and reverse into a bullish stance on today’s recovery above 86.77, with a relapse below 81.27 required to negate this call, warrant immediate long covers and reversals back into a bearish policy.  In lieu of weakness below at least 84.97 and preferably 81.27, further and possibly protracted gains are anticipated straight away.

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