The uptrend is clear and present and quite obvious in the 240-min chart below with the past couple days’ continuance leaving Mon’s 115.65 low in its wake as the latest smaller-degree corrective low this market is now minimally required to fail below to confirm a bearish divergence in short-term momentum and even defer the bull, let alone threaten it. Per such, we’re identifying this 115.65 low as our new short-term risk parameter from which shorter-term traders with tighter risk profiles can rebase and manage the risk of a still-advised bullish policy and exposure.
In 29-Jul’s Technical Blog we listed four different Fibonacci retracement and progression relationships starting with the (111.17) 50% retrace of Mar-Jun’s 130.65 – 94.55 meltdown (you know how much we like Fib relationships). Understanding that these Fib levels are as “derived” as all other derived and so-called “technical levels” like trend lines, Bollinger Bands, imokus and the ever-useless moving averages, it comes as absolutely no surprise whatsoever that this bull has blown away three of those levels thus far. Whether or not the remaining (127.54) 2.618 progression of mid-to-late-Jun’s initial 94.55 – 104.65 (suspected 1st-Wave) rally taken from 15-Jul’s 96.30 (2nd-Wave) low will bear fruit or not is anyone’s guess.
Under the circumstances and conditions of a clear and present uptrend, the ONLY thing that matters around some derived level, or any other level for that matter, is MOMENTUM. And a CONFIRMED bearish (in this case) divergence below either a prior corrective low or an initial counter-trend low. And herein lies the importance of identifying corrective lows like even Mon’s 115.65 smaller-degree corrective low. Until and unless such “non-strength” is proven, the market’s upside potential from current 124.30-area heights is as indeterminable and potentially steep as it was three weeks ago when the market was trading around 102.
Moving out even further, the weekly log scale chart below shows the market encroaching on the upper-quarter of the 87.60 – 142.45-range that has imprisoned prices for the past two years. Even a smaller-degree bearish divergence in momentum from levels above a 126-handle will not be able to be ignored as a bigger peak/correction/reversal threat. BUT until and unless this market confirms such a mo failure, the bull’s upside potential remains indeterminable and potentially steep.
A key factor that contributed to our major, if intra-range base/reversal count introduced in 24-Jun’s Trading Strategies Blog was and remains market sentiment/contrary opinion. And it’s surprising that DESPITE the past three weeks’ major reversal, sentiment levels remains relative depressed and bearish. Under such bearish contrary opinion circumstances we talk about the market’s vulnerability to higher prices as the overall market forces the capitulation of those short-and-wrong positions. Our RJO Bullish Sentiment Index will be updated again this Fri and reflect open positions as of yesterday’s (8/4’s) close. Given the steep, accelerated nature of the past couple weeks’ rally, we suspect we’ll see a sharp rise in this indicator from its current 46% level as the Managed Money community has been forced to cough up losing positions.
These issues considered, a bullish policy and exposure from 98.70 OB recommended in 24-Jun’s Trading Strategies Blog remain advised with a failure below 115.65 required to defer or threaten this call enough to warrant profit-taking by shorter-term traders with tighter risk profiles. And while longer-term players are OK to pare bullish exposure on a failure below 115.65, commensurately larger-degree weakness is clearly required to conclude a larger-degree peak/reversal environment. And we don’t think the market is anywhere near such a condition yet. In lieu of weakness below at least 115.65, further and possibly accelerated gains remain expected.