Posted on May 25, 2023, 12:17 by Dave Toth
Today’s break below 17-May’s 2.471 corrective low in the now-prompt Jul contract breaks early-to-mid-May’s uptrend and defines 19-May’s 2.816 high as the end of a 5-wave Elliott sequence up from 05-May’s 2.233 low. Per such and as we’ll discuss below, we believe this 2.816 high completes an “irregular” correction that dates from 14-Apr’s 2.386 low and now re-exposes the major bear trend to new lows below 2.233. In this regard, this 2.816 level serves as our new short-term bear risk parameter from which shorter-term traders can objectively base non-bullish decisions like long-covers and resumed bearish punts.
On an even tighter scale, today’s break below Tue’s 2.484 low reaffirms at least the intermediate-term downtrend and leaves today’s 2.607 high in its wake as a smaller-degree corrective high this market is minimally required to recoup to defer or threaten a more immediate bearish count. Per such, this 2.607 level serves as a mini risk parameter from which short-term traders can objectively base resumed bearish exposure.
The daily log chart above shows this week’s relapse from last Fri’s 2.816 high that we believe completes an “irregular” correction that began with 14-Apr’s 2.386 low. What makes this correction “irregular” is that the B-Wave of the correction actually took out the start of the correction’s low at 2.386. Under these “irregular” circumstances, the completing C-Wave will typically 1) take out the A-Wave’s high (19-Apr’s 2.746 high in this case), 2) be a 5-wave sequence, and 3) be 61.8% longer than the A-Wave. All three of these guidelines were met perfectly. And if correct, this complete correction would be expected to expose a resumption of the major downtrend that preceded it to new lows below 05-May’s 2.233 low in the Jul contract. If we move out to a weekly log active-continuation basis below however, this may or may not mean a new low below 14-Apr’s 1.946 low in the then-prompt May contract.
On this broader weekly scale, we continue to believe that this market is in a major, multi-month bottoming process that is expected to include highly volatile price action and whipsaw risk. This call is predicated on:
- a compete or completing and massive 5-wave Elliott sequence down from Aug’22’s 10.028 high
- waning downside momentum
- historically bearish sentiment levels, and
- the market’s return to the lower-quarter of its historical range shown in the monthly log chart below.
In effect, we anticipate a repeat of the major, multi-month bottoming process that began in Feb’20 but didn’t take hold with an upside reversal until Aug of that year. That bottoming process spanned months and included no shortage of choppy, aimless whipsaw behavior. Given this prospect and the very good likelihood that the easy down-trending money from last Nov to Apr is behind us, a much more conservative approach to directional risk assumption is urged.
These issues considered, a bearish policy remains advised for longer-term commercial players with a recovery above 2.816 required to pare exposure to more conservative levels and commensurately larger-degree strength above 03-Mar’s 3.027 larger-degree corrective high on an active-continuation basis required to neutralize remaining exposure. Shorter-term traders are advised to return to a cautious bearish stance with a recovery above 2.607 (tight) and/or 2.816 required to threaten and then negate this call and warrant defensive measures. In lieu of a recovery above 2.816, a resumption of the major bear trend in the Jul contract to new lows below at least 2.233 is expected, and possibly below 14-Apr’s 1.946 low on an active-continuation basis.