Posted on Sep 15, 2023, 06:55 by Dave Toth

Overnight’s recovery above 01-Sep’s 0.7415 larger-degree corrective high confirms a bullish divergence in daily momentum that confirms our base/correction/recovery count introduced in 12-Sep’s Technical Blog.  This next larger-degree proof of strength reinforces at least an interim bullish count that identifies 07-Sep’s 0.7303 low as the end of a textbook 5-wave Elliott sequence down from 14-Jul’s 0.7644 low, exposing at least a larger-degree correction of this entire decline.  As a result, 07-Sep’s 0.7303 low serves as our new longer-term parameter from which the risk of non-bearish decisions like short-covers and cautious bullish punts can be objectively based and managed by longer-term institutional players.  The 240-min chart below also shows Wed’s 0.7360 low as the latest smaller-degree corrective low this market is now minimally required to fail below to break the past week’s uptrend.  Per such, this 0.7360 level serves as our new short-term parameter from which shorter-term traders with tighter risk profiles can objectively manage the risk of non-bearish decisions like short-covers and cautious bullish punts.

The daily chart below shows today’s confirmed bullish divergence in momentum above 01-Sep’s 0.7415 corrective high that, in fact, breaks Jul-Sep’s downtrend.  The suspected complete 5-wave sequence down from 14-Jul’s 0.7644 is about as textbook as it gets, warning of at least a larger-degree correction of this entire decline until/unless negated by a relapse below 0.7303.  This said and knowing how challenging corrections can be, such an intermediate-to-longer-term corrective recovery could easily include an interim whipsaw below Wed’s 0.7360 smaller-degree corrective low and short-term bull risk parameter.

We’ve labeled the 38.2%, 50% and 61.8% retraces of Jul-Sep’s decline at 0.7434, 0.7474 and 0.7514 (for what this is worth), but these are NOT considered resistance of any kind.  Rather, these merely “derived” levels are used as “points of interest” around which to beware of any recovery-stemming bearish divergence in momentum that might improve the odds of concluding the correction’s end ahead of a prospective resumption of Jul-Sep’s broader downtrend.  Until/unless such a bearish divergence in mo arrests this current rally, its upside potential is advised to be approached as indeterminable and should not be underestimated.

The challenge from a much longer-term perspective is this market’s position deep, deep, deep within the middle-half bowels of not only the past three years’ range shown in the weekly chart above, but also the lateral range that has dominated it for the past EIGHT YEARS shown in the monthly chart below.  As fully expected, this range-center condition has been and remains a major source of aimless whipsaw risk that warrants a more conservative approach to directional risk assumption for longer-term institutional players.

This said, the extent and 5-wave impulsiveness of Jul-Sep’s decline is important from a longer-term bearish perspective becomes in comes on the heels of a clear 3-wave and thus corrective recovery attempt from Oct’22’s 0.7156 low to Jul’23’s 0.7644 high.  Left unaltered by a recovery above 0.7644, this extraordinarily labored, 3-wave recovery attempt is considered a (4th-Wave) corrective/consolidative event that warns of an eventual (5th-Wave) resumption of the major, if intra-eight-year range downtrend from Jun’21’s 0.8328 high to a new low below last year’s 0.7156 low.  Such a prospect is the prospective reward for identifying the end and bear risk parameter to the current (suspected 2nd-Wave) correction up from 0.7303.

These issues considered, a neutral-to-cautiously-bullish policy is advised for the time being with a failure below 0.7360 required for shorter-term traders to stand aside and commensurately larger-degree weakness below 0.7303 required to negate this call and re-expose a downtrend that could be major in scope.  In lieu of such weakness, further lateral-to-higher prices are anticipated in what could be a span of weeks.  We will be watchful for a bearish divergence in short-term momentum needed to stem the recovery and define a more reliable high and resistance from which the risk of a resumed bearish policy can be objectively based and managed.

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