Posted on Oct 06, 2022, 09:22 by Dave Toth

In Mon’s Technical Blog we discussed that day’s impressive, impulsive break above 12-Sep’s 20.005 initial counter-trend high that confirmed a bullish divergence in daily momentum that ultimately led to Tue’s break above 15-Aug’s 20.87 larger-degree corrective high that breaks this year’s major downtrend.  As a result of this clear and decisive break above former 20.00-area resistance, this area becomes a new key support candidate that the market seems to have thus far acknowledged by virtue of yesterday’s relapse to and rejection of a 19.985 low.  Within the construct of an even 5-wave Elliott sequence up from 28-Sep’s 17.895 larger-degree corrective low, we’re defining yesterday’s 19.985 low as the end or lower boundary of a suspected 4th-Wave correction low from which the market would now be expected to continue higher per any broader bullish count.  Per such, 19.985 is considered our new short-term bull risk parameter from which shorter-term traders with tighter risk profiles can objectively base non-bearish decisions like short-covers and cautious bullish punts.

On a broader scale and while this week’s rally, in fact, confirms a bullish divergence in WEEKLY momentum that breaks this year’s major downtrend, the weekly log chart below also shows this market thus far only returning to a massive area of former support from the 21-handle-area that held this market up for more than a year and that, since demolished back in Jun, now is considered an equally massive resistance area.  To this point and as labeled in the daily chart above, the recovery from 01-Sep’s 17.40 low is only a 3-wave affair.  The rally from 28-Sep’s 17.895 low is either the completing C-Wave of another bear market correction OR the dramatic 3rd-Wave of a major reversal higher.  A failure below yesterday’s 19.985 smaller-degree corrective low will not negate the latter bullish count, but a failure below 17.895 would.  An admittedly smaller-degree mo failure below 19.985 would, however, provide the first strike against a broader bullish count.

Contributing to a broader base/reversal count now that a bullish divergence in momentum has at least threatened the major downtrend and rejected/defined more reliable lows and support is the historically bearish levels our sentiment/contrary opinion indicators have reached.  Indeed, both the Bullish Consensus ( and our RJO Bullish Sentiment Index have recently and understandably have reached 3-YEAR lows typical of major base/reversal environments.  For such a broader base/reversal count to remain intact, the bull must now BEHAVE LIKE ONE by sustaining trendy, impulsive behavior higher and blow away the 21-handle-area resistance.  And it certainly must sustain recent gains above last week’s 17.895 low and key long-term bull risk parameter.  Its failure to do so will chalk up the past month’s recovery attempt as another correction and re-expose the secular bear market to levels below, and possibly far below 01-Sep’s 17.40 low.

These issues considered, a bullish policy is advised with a failure below 19.985 sufficient for shorter-term traders to move to the sidelines and commensurately larger-degree weakness below 17.895 to negate any base/reversal count and re-expose the secular bear.  In lieu of such weakness, further and possibly accelerated gains should not surprise, especially if this market can poke through the pivotal 21-handle-area resistance.

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