In our last Technical Blog from Tues we continued to discuss what we believe is the start of a broader base/correction/reversal environment but warned against “chasing” the suspected initial (A- or 1st-Wave) rally from 15-Aug’s 1.1327 low detailed in the 240-min chart below.  Rather, we advised waiting for the prospective (B- or 2nd-Wave) corrective rebuttal to the rally from 15-Aug’s 1.1327 low.

With yesterday and today’s break below Wed’s initial counter-trend low on a very minor scale, the market has confirmed a bearish divergence in momentum that defines Tue’s 1.1751 high as the END of what looks to be a textbook 5-wave Elliott sequence up from 1.1327.  In Fibonacci fact, the completing 5th-Wave from 23-Aug’s 1.1548 low came within just six pips of its (1.1745) 0.618 progression of the net length of Waves-1-thru-3 from 1.1327 to 1.1645, a typical progression relationship for 5th-waves.

As a result of this admittedly short-term mo failure the market has defined Tue’s 1.1751 high as our new short-term risk parameter from which non-bullish decisions like long-covers and cautious bearish punts can be objectively based and managed.  We have also marked the 50% and 61.8% retraces of the 1.1327 – 1.1751 rally at 1.1539 and 1.1489, respectively, as levels/areas around which to watch for a countering bullish divergence in momentum that could present one of the best risk/reward buying opportunities heading into the last third of the year.

Traders are reminded of the technical elements on which our broader base/reversal count is predicated:

• the prospect that the decline from 16-Feb’s 1.2580 high is a (textbook) complete 5-wave Elliott sequence as labeled in the daily log chart above and weekly close-only chart below
• the market’s failure to sustain mid-Aug losses below six weeks of former 1.15-handle-area support-turned-resistance
• the erosion in bullish sentiment to historically low levels not seen in a year-and-a-half
• Jan-Aug’s exact 50% retrace of Dec’16 – Jan’18’s entire 1.0453 – 1.2456 rally on a weekly close-only basis in the cash Euro amids
• waning downside momentum on a weekly basis.

Thus far, the market has only satisfied two of our three key reversal requirements on a scale that matters relative to the magnitude of this year’s decline:

1. a confirmed bullish divergence in daily momentum that stemmed the downtrend at 1.1327
2. proof of trendy, impulsive, 5-wave behavior on the initial counter-trend rally.

The key third requirement of proof of 3-wave, corrective behavior on a subsequent relapse attempt remains to be satisfied.  But per the discussion above we believe that that suspected (B- or 2nd-Wave) correction lower has begun from Tue’s 1.1751 high.  If, in the days or even the next couple/three weeks this market labors in lateral-to-lower price action that is ultimately stemmed by another bullish divergence in short-term mo- perhaps down around the 1.1540 or 1.1490-areas, we believe a tremendous risk/reward buying opportunity will be presented ahead of a resumption of the broader base/reversal process to eventual new highs above 1.1751.  Until and unless this relapse is stemmed by such a bullish divergence in mo however, we can’t ignore the alternate possibility that the second-half of Aug’s rebound completed or defined the upper end of a correction within this year’s major bear ahead of a resumption of that bear to new lows below 1.1327.

These issues considered, a neutral-to-cautious-bearish policy is advised from the 1.1650-area OB with a recovery above 1.1751 negating this shorter-term call, reaffirming the broader base/reversal count and exposing potentially sharp gains thereafter.  We will be watchful for a bullish divergence in momentum around the 1.1540-to-1.1490-range or lower for a risk/reward buying opportunity that could be very compelling for the remainder of this year.