Posted on Nov 18, 2022, 08:13 by Dave Toth

In Tue’s Technical Blog we discussed that day’s bearish divergence in daily momentum below 10-Nov’s 84.70 initial counter-trend low.  This morning, the market broke 18-Oct’s 81.30 larger-degree corrective low that, at the very least, reinforces our long-term bearish count that contends the flagging recovery attempt from 26-Sep’s 76.25 low is a (2nd-Wave) corrective/consolidative event within a massive peak/reversal process from Jun’s 123.68 high.  At most, the past two day’s weakness warns that 07-Nov’s 93.74 high might have COMPLETED this 2nd-Wave correction, leaving the market poised to bash through 28-Sep’s 76.25 low in a 3rd-Wave down that almost seems incomprehensible on the heels of a 2-YEAR secular bull market and amidst the highest inflation rates in 40 years.

At this point and with the market having yet to break 26-Sep’s 76.25 low and support, it would be premature to conclude such a bear market resumption, as opposed to the past couple weeks’ decline being a prospective B-Wave WITHIN the (2nd-Wave) correction/consolidation that may yet have another (C-Wave) spike to its upper boundary.  But as we’ll detail below, we believe a recovery above at least 10-Nov’s 84.70 (prospective 1st-Wave) low is now required to jeopardize the impulsive integrity of a more bearish count that could including the market blowing away Sep’s pivotal 76.25 low straight away.

On a short-term basis detailed in the 240-min chart below, the past couple days’ clear break below 10-Nov’s 84.70 low identifies that low as the prospective 1st-Wave of an eventual 5-wave Elliott sequence down that, presumably, would include the market’s break below Sep’s pivotal 76.25 low.  To mitigate such a more immediate bearish count, this market needs to recover above at least 84.70.  Per such, we’re identifying 84.70 as our new short-term risk parameter from which a move to a cautious bearish policy can be objectively based and managed.

On a broader weekly close-only basis, the chart below shows the market poised to close below 23-Sep’s 79.43 low, arguably reinstating this year’s major peak/reversal process.  What’s scary about the market’s downside potential is that our RJO Bullish Sentiment Index of the hot Managed Money positions reportable to the CFTC remains at historically frothy levels.  With a whopping 245K long positions to just 31K shorts, this long-and-wrong exposure is considered tremendous fuel for downside vulnerability as the overall market forces the capitulation of this bullishly skewed exposure.

These issues considered, traders are advised to move to a cautious bearish policy and exposure, perhaps via more tailored and forgivable option strategies, with a recovery above 84.70 required to negate this call and warrant its cover.  In lieu of such strength, further and possibly surprising losses should, well, not surprise.

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