The 240-min chart below shows the fallout from 08-Sep’s bearish divergence in momentum below 3.0840 discussed in that day’s Technical Blog. Waning downside momentum on this short-term scale warns that 15-Sep’s 2.9310 low may have completed this slide. Subsequent strength above Mon’s 2.9935 high (which would render that high an initial counter-trend high) would reinforce this call and expose at least a correction of this month’s 3.1785 – 2.9310 decline and possibly a resumption of the secular uptrend to new highs above 3.1785. Non-bearish decisions like short-covers and cautious bullish punts can be protected with protective sell-stops below 2.9310.
Jumping from this technical minutia to a very long-term perspective shown in the weekly (above) and monthly (below) log scale charts, the market has yet to provide the price action needed to suggest the 20-month uptrend has ended. Threats against this bull however are developing and this likely means choppier, erratic price action in the weeks ahead that’s going to require patience, flexibility and a more conservative approach to risk assumption.
The secular uptrend from Jan’16’s 1.9355 has been one of the more pleasant, even textbook bull markets we’ve seen in a while. Former resistance has held as support, the bull has traipsed nicely within the overall up-channel and the entire rally looks to be a textbook 5-wave Elliott sequence with the 4th-Wave correction holding an exact 38.2% retrace and the suspected 5th-Wave from 08-May’s 2.4725 low spanning a length within a nickle of its (3.1220) 0.618 progression of the net distance of Waves-1-thru-3 (1.9355 – 2.8230).
Is Sep’s relapse from 3.1785 to 2.9310 sufficient to conclude the end of a 20-month bull? Of course not. BUT the combination of:
- the prospective 5-wave rally from the Jan’16 low
- proximity to a ton of former support from the entire 3.000-area from Oct’11 until Nov’14’s breakdown that is now a major resistance candidate AND
- the understandable move to some of the highest bullish sentiment levels in this market’s history
is a compelling one that at least warns of the developing potential for a peak/reversal environment that may be major in scope.
Returning to just the May-Sep’17-portion of the bull detailed in the daily log scale chart below, the past couple weeks’ setback falls well within the bounds of a mere (4th-Wave) correction ahead of a (5th-Wave) resumption of the bull to at least one more round of highs above 05-Sep’s 3.1785 high. Indeed, the market has thus far failed to break 15-Aug’s 2.8755 next larger-degree corrective low and our key long-term risk parameter needed to, in fact, break the uptrend from May’s 2.4725 low. And while the wave count labeled below that calls for a 5th-Wave rally to new highs is as valid as any, there are so many iterative steps/waves within the rally from 2.4725 that we don’t want to ignore the prospect that “we missed one” and that 05-Sep’s 3.1785 did complete a 5-wave affair from 2.4725. And as discussed above, this 5-wave rally from May’s 2.4725 low could be THE completing 5th-Wave on a major weekly or even monthly scale that would suggest a MAJOR peak/reversal threat from this month’s high.
In navigating trend reversals, we have three technical requirements:
- a confirmed bearish (in this case) divergence in momentum of a scale sufficient to break the major uptrend
- proof of trendy, impulsive behavior in the new direction (down) and, most importantly,
- proof of labored, corrective behavior on a subsequent recovery attempt.
It’s debatable that the market satisfied even the first requirement, let alone all three. But this 3-requirement guideline could be very useful in the weeks ahead following what we believe will be a “counter” to this month’s slide. For as we discuss in our technical analysis workshops, major trends, like freight trains, rarely go from 100 mph in one direction and then throw it in reverse. Trends slow down first, indicating waning strength, before reversing. And even then, given the preponderance of both technical and fundamental strength that takes time to erode to the point of a sustained reversal, peak/reversal PROCESSES typically include an often times extensive corrective retest of the high (i.e. B- or 2nd-wave) before succumbing to the reversal in a more obvious way.
IF IF IF this month’s decline from 3.1785 IS the start of a major correction or reversal lower, then by definition the market needs to provide proof of labored, corrective behavior on a recovery attempt. It has not yet done this. But if, in a couple/three weeks, we can look back on a couple/three weeks of a 3-wave, labored, corrective recovery attempt from, say, Fri’s 2.9310 low, a move to a new bearish policy will be a more objective and favorable risk/reward decision.
In sum, a cautious bullish policy remains advised for long-term players with a failure below 2.8755 required to threaten this call enough to warrant moving to a neutral/sideline position. Shorter-term traders warned to move to the sidelines following 08-Sep’s mo failure below 3.0840 are advised to return to a cautious bullish policy on the immediate break above 2.9935 that will leave Fri’s 2.9310 low in its wake as one from which bullish decisions can then be objectively based and managed. At such 2.9935+ levels we would anticipate at least a more extensive correction of the 3.1785 – 2.9310 decline and possibly a resumption of the secular bull to new highs above 3.1785.