After smaller-degree momentum failures below 224.10 on 13-Jun and below 226.45 this past Fri detailed in the 240-min chart above, yesterday’s relapse below 13-Jun’s 219.00 initial counter-trend low confirms a bearish divergence in larger-degree daily momentum (below) that warns of potentially more protracted losses in the period immediately ahead.  We hate having to use a hedging term like “potentially” (c’mon….get off the fence!), but unfortunately or perhaps fortunately, the market’s factual residence still deep within the middle-half bowels of this year’s range maintains the major correction-vs-reversal debate and challenge that 1) warns us to remain flexible to either directional outcome and 2) warrants a more conservative approach to risk assumption.

What we CAN state with specificity and confidence is the market’s definition of smaller- and larger-degree corrective highs at 237.10 and 241.75 that it now must recoup to mitigate a more immediate and broader bearish/peak/reversal count and reinforce a broader bull market correction count.  If the price action from 10-Feb’s high is a major (4th-Wave) correction within the still-unfolding 3-YEAR secular bull market, we believe the lower-quarter of this year’s range (215-to-202) should contain this current sell-off attempt.  And per such, we will keep a keen eye out for a relapse-stemming bullish divergence in short-term momentum.  Until and unless such a momentum failure arrests this decline from 02-Jun’s 241.75 high, there’s no way to know that this decline isn’t the dramatic 3rd-Wave of a major reversal lower that’s destined to blow away 10-May’s obviously pivotal 202.40 low.

Additionally, we always discuss the greater odds of aimless whipsaw risk and the poor risk/reward metrics of directional exposure from the middle-halves of ranges.  Only a glance at the daily log chart below is needed to see that this aimless, choppy, lateral behavior has dominated this market for months and remains a threat and significant consideration when assuming and managing risk.

Moving out to a long-term perspective, the magnitude of Jun’20 – Feb’22’s rally from 94.55 to 260.45 is easily considered the massive 3rd-Wave of an eventual and even more massive 5-wave sequence up from May’19’s 87.60 low.  Per this count, this year’s relatively piddly setback attempt easily falls within the bounds of a mere 4th-Wave consolidation that is setting the stage for an eventual 5th-Wave spike to new highs.  Threats to this valid, subjective, theoretical bullish wave count include:

  • a confirmed bearish divergence in WEEKLY momentum back in early-Mar amidst
  • historically stratospheric levels in our RJO Bullish Sentiment Index
  • an alternate wave count that contends 10-Feb’s 260.45 high completed a massive 3-wave correction within this market’s historical range, and
  • the market’s recent engagement and thus far rejection of the upper-quarter of its historical range shown in the monthly log chart below.

It is not hard at all to find considerable threats to the secular bull market from May’19’s 87.60 low.  But commensurately larger-degree weakness below 10-May’s 202.30 low is now required to reinforce a bearish count that could be as massive as the past few years’ bull run.  This gets us back to the market’s downside potential in the period immediately ahead and HOW the market behaves in this slide.  If a major reversal is unfolding, then the bear needs to BEHAVE LIKE ONE with sustained, trendy, impulsive behavior lower and the annihilation of 10-May’s 202.30 low.  A labored, limping decline to the lower-quarter of this year’s range that is stemmed by another bullish divergence in momentum will not only reduce the odds of such a major peak/reversal count, but could present an outstanding risk/reward opportunity from the bull side for a prospective 5th-Wave resumption of the secular bull.

In sum, acknowledgement of and flexibility to a big move either way is urged.  Currently and for shorter-term reasons cited above, odds have tilted in favor of the bear that we believe warrants a neutral-to-cautiously-bearish stance with a recovery above 237.10 currently required to negate this call and flip the script higher.  In lieu of such a recovery or a bullish divergence in momentum in the week or two ahead, further and possibly sharp losses should not surprise, including a break of 10-May’s key 202.40 low in the Sep contract.

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