Posted on Feb 15, 2024, 10:24 by Dave Toth

While the market has yet to take out 30-Jan’s 85.92 high and short-term bear risk parameter discussed in 05-Feb’s Technical Blog following that day’s bearish divergence in short-term mo, it looks poised to do so given the extent and impulsiveness of yesterday and today’s rebound following yesterday morning’s bullish divergence in short-term momentum above 82.40.  As a result, we’re trailing our long-term bull risk parameter from 11-Jan’s 79.42 high to last week’s 79.67 low, a level this market must now clearly sustain gains above to maintain not only a more immediate bullish count, but a longer-term one as well.

On a broader scale, the market has yet to provide the evidence to mitigate the past month-and-a-half’s impressive rally from 02-Jan’s 71.70 low in what we suspect is a larger-degree corrective spasm within the nearly-two-year secular bear market from Mar’22’s 127.32 high.  As a result of this week’s recovery, a relapse below 79.67 will, in fact, break Jan-Feb’s uptrend and, give this market’s position still deep within the middle-half bowels of its historical range, expose a correction or reversal lower of indeterminable and potentially significant scope, especially since our RJO Bullish Sentiment Index shows a flooding back to the bull side by the Managed Money community to levels (72%) that have warned of and accompanied significant tops over the past two years.

Moving bac even further and as discussed ad nauseum for months, the market’s residence still deep within the middle-half bowels of its massive but lateral historical range maintains the odds of aimless whipsaw risk precisely like the past few months where we know to approach directional assumption more conservatively.  Technically, we don’t look at cycles at all and rarely at “seasonals”, but everyone is aware of the BBQ-planning bid that typically hits this market in spring/early-summer.  This likelihood contributes to the current constructive count and warns of potentially steep, if intra-range gains above 85.92.  Indeed, both the weekly chart above and monthly chart below show NO levels of any technical merit above 85.92 shy of last Jul’s 100.75 high.  This does not mean we’re forecasting a move to 100.  But it does mean that the market’s upside potential above 85.92 is indeterminable and potentially extreme, including a run at 100 or above.

What’s also critical to the next couple months’ navigation of prices “up here” is the acknowledgement of and preparation for continued aimless whipsaw risk and high volatility, where a rally-countering bearish divergence in momentum could easily and dramatically flip the directional script back to the bear side.  Herein lies the importance of identifying corrective lows and risk parameters like 79.67, the failure below which will arrest the intra-range rally and expose a countering correction or reversal lower that could be severe.

These issues considered, shorter-term traders whipsawed out of bullish exposure on 05-Feb’s bearish divergence in short-term momentum are advised to return to a cautious bullish stance on a dip to the 84.72-area OB with a failure below 82.40 required to threaten this call enough to warrant its cover.  A bullish policy remains advised for longer-term commercial players with a failure below 79.67 required to neutralize exposure and consider reversing into a new bearish stance.

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