Posted on Jun 14, 2023, 11:47 by Dave Toth
In Fri’s Technical Blog we discussed Thur’s bearish divergence in very short-term momentum that defined 07-Jun’s 178.10 high as one of developing importance and possibly the end of the portion of the secular bull trend from 04-May’s 159.25 larger-degree corrective low. Today, by relapsing below Fri’s 170.95 initial counter-trend low, the market has provided another level of weakness, leaving today’s 174.40 high in its wake as another smaller-degree corrective high. As a result, the market has identified two highs and resistance now at 174.40 and 178.10 that are considered mini and short-term parameters from which the risk of non-bullish decisions like long-covers and cautious bearish punts can be objectively based and managed.
Against the backdrop of the secular bull market, the past week’s setback remains grossly insufficient to conclude anything more than another corrective dip ahead of another round of new highs for the secular bull. But as discussed last week and due to the extent and uninterrupted nature of late-May/early-Jun’s portion of the bull that left nothing in the way of a more practical and acceptable bull risk parameter, even longer-term commercial players were advised to move to a neutral/sideline position to circumvent the depths unknown of a correction OR reversal lower. What the past week’s slide HAS provided are two distinct and objective levels- 174.40 and 178.10- this market is now required to recover above to confirm the setback as corrective and reinstate the secular bull trend. Until and unless these levels are recouped, a steeper correction or reversal lower is anticipated.
On a broader scale, only a glance at the daily (above) and weekly (below) charts of the Aug contract is needed to see the magnitude of the secular bull trend. Thus far only retracing a Fibonacci minimum 38.2% of May-Jun’s 159.25 – 178.10 rally, the past week’s setback falls well within the bounds of another 3-wave correction ahead of a resumption of the major uptrend. And such a resumed bullish count will be reinforced by a recovery above 174.40 and confirmed by a recovery above 178.10. Until and unless such strength is proven, there’s no way to know the depth of this correction OR reversal lower. The likelihood that today will be another “outside day down” on the heels of 07-Jun’s outside day contribute to at least interim correction and weakness.
To break the secular bull trend, commensurately larger-degree weakness below 04-May’s 159.25 larger-degree corrective low and key long-term risk parameters remains MINIMALLY required. Such is the nature and fact of the massive extent to which this bull market has driven prices higher. What the market has in store for traders between last week’s 178.10 high and that 159.25 major corrective low is anyone’s guess.
From a “trader’s” perspective as well as a risk/reward perspective, we have advised moving to at least a neutral/sideline position as a result of last week’s mo failure in order to circumvent the unknown of at least interim downside. IF this latest setback is just a correction, somewhere between spot and 159.25 this market would be expected to arrest the relapse with a bullish divergence in momentum. And if that relapse looks like a 3-wave affair, whatever low is left in the wake of that mo failure will provide a more reliable level from which to resume a bullish tack. NOT moving to the sidelines and RELYING on this setback to be a correction acknowledges and accepts bull risk to at least an area of former resistance-turned-support around the 165.00-area from mid-Apr.
Moving out even further, the market’s posting last week of new all-time highs above 2014’s 172.75 high is certainly an indication of strength. Historically extreme bullish sentiment/contrary opinion levels not seen in at least four years and, in the case of the Bullish Consensus (marketvane.net), since 2014, is quite understandable and expected under such all-time-high circumstances. Such euphoria is also typical of massive peak/reversal environments.
This said, traders are reminded that sentiment/contrary opinion is not an applicable technical tool in the absence of an accompanying confirmed bearish divergence in momentum of a scale sufficient to even threaten, let alone break the major uptrend. The past week’s bearish divergences in short0-term and now daily momentum are NOT of sufficient scales. Nonetheless, even these smaller-degree mo failure, combined with stratospheric sentiment levels, an arguably complete and massive 5-wave Elliott sequence and the market’s vicinity to 2014’s previous all-time high conspire to present a technical condition that questions the risk/reward metrics of a longer-term bullish policy “up here” to warrant a neutral/sideline position.
In sum, a neutral-to-cautiously-bearish policy and exposure are advised with a recovery above 174.40 threatening this call and subsequent strength above 178.10 negating it and reinstating the secular bull. In lieu of such strength, further and possibly accelerated losses should not surprise.