Posted on May 31, 2023, 10:58 by Dave Toth
Today’s recovery above 24-May’s 82.02 smaller-degree corrective high and our short-term risk parameter discussed in 25-May’s Technical Blog breaks the portion of the major downtrend from 16-May’s 88.75 larger-degree corrective high. By doing so, the market has identified Fri’s 74.02 low as one of developing importance and our new short-term risk parameter from which shorter-term traders can objectively base non-bearish decisions like short-covers as this is the obvious level the market now needs to break to resurrect the major bear trend.
Against the backdrop of a 33% meltdown from 27-Dec’s 109.97 high however, it would be premature to conclude the past couple days’ spasm as anything other than another (prospective 4th-Wave) correction within the overall bear trend. An alternate count would contend that this week’s recovery is just the start of a bigger correction or reversal higher. But as the forces that have driven a 5-MONTH 35-cent meltdown aren’t likely to evaporate overnight, and since this week’s spike would, at best, satisfy only the first two of our three key reversal requirements on even a short-term basis, we would anticipate at least a (B- or 2nd-Wave) corrective rebuttal to this week’s rally as a preferred risk/reward buying opportunity. “Chasing” bullish exposure “up here” presents poor risk/reward metrics as one’s only objective risk parameter is Fri’s 74.02 low.
Stepping back, the daily (above) and weekly (below) log scale charts of the Jul contract show the magnitude of this year’s major reversal and bear trend. It is not beyond the realm of possibility that Fri’s 74.02 low completed a major 5-wave Elliott sequence down from Dec’s 109.97 high. But to CONCLUDE such just because of this week’s bounce is highly subjective and emotional. IF such a base/reversal environment is being signaled, then the market would be expected to satisfy our third key reversal requirement of proof of 3-wave corrective behavior on a subsequent relapse attempt, or exactly the opposite of the topping process that unfolded from 27-Dec’s 109.97 high and included a nearly month-long and more than 61.8% retrace of Dec-Jan’s initial counter-trend break.
To negate this basing process/threat and increase the sense of urgency of a broader reversal higher, commensurately larger-degree strength above 16-May’s 88.75 larger-degree corrective high and key long-term bear risk parameter remains required. The lower-84-handle-area is one of former support-turned-resistance and an area we would expect this rebound to fizzle out below if it’s just a steeper bear market correction. We will be watchful for a rebound-stemming bearish divergence in short-term mo between the (82.61) 61.8% retrace of mid-to-late-May’s 88.75-to-74.02-portion of the bear and the lower-84-handle to reject/define a more reliable high from which a resumed bearish policy by shorter-term traders can be objectively based and managed. Following such a mo failure, we would anticipate at least a steeper corrective rebuttal to this week’s spike, if not a resumption of the major bear to new lows below 74.02.
The weekly chart below also shows understandably historically bearish sentiment/contrary opinion levels typical of major BASE/reversal environments. Traders are reminded however that sentiment/contrary opinion is not an applicable technical tool in the absence of an accompanying confirmed bullish divergence in momentum of a scale sufficient to threaten the major downtrend. Today’s poke above 82.02 is not of such a scale.
Finally and on an even longer-term monthly log active-continuation basis above, the market remains deep within the middle-half bowels of its massive but lateral historical range where the odds of aimless whipsaw risk remain high, so navigating trends, corrections within trends and reversals is challenging and warrants a more conservative approach to directional risk assumption. But also interesting from a very long-term perspective shown in the monthly log chart below is the seasonal tendency for this market to trade lower in the months following Jun. Indeed, in 14 of the past 15 years, this market as traded lower, and often times much lower, in months following Jun. Betting against a preponderance of the bearish factors cited above just because of this week’s spasm, and risking that bet to 74.02, we believe, is a very poor risk/reward proposition.
These issues considered, a bearish policy remains advised for longer-term commercial players with a recovery above 88.75 still required to negate this call and warrant its cover. Shorter-term traders have been advised to move to a neutral/sideline position as a result of today’s recovery above 82.02. This said, we will be watchful for rebound-stemming bearish divergence in short-term momentum from the 82.80-to-84.10-area for a favorable risk/reward opportunity to reset bearish exposure for at least a corrective rebuttal to this week’s bounce, if not a resumption of the major bear.
