Posted on Sep 27, 2023, 07:40 by Dave Toth

In 20-Sep’s Technical Blog we introduced a peak/reversal count that could prove major in scope.  And while a break of 08-Aug’s 3266 larger-degree corrective low remains required to confirm a bearish divergence in momentum of a scale sufficient to break the secular bull trend, Mon’s break below 17-Aug’s 3512 1st-Wave high confirms 15-Sep’s 3763 high as the END of a 5-wave sequence up from that 3266 low.  Today’s continued decline reinforces this prospective broader bearish count because it contributes to a trendy, impulsive 5-wave sequence down required for the INITIAL 1st-wave of a new bear trend.

As a result of today’s continued slide, 15-sep’s 3763 high becomes one of even more obvious importance and our short-term parameter from which non-bullish decisions like long-covers and new bearish punts can now be objectively based and managed.  Yesterday’s 3539 high is the smallest-degree corrective high the market would be expected to sustain losses below in order to maintain a more immediate bearish count.  Inh this very short-term regard, 3539 serves as a mini bear risk parameter for short-term traders.

On a broader scale, the weekly log chart below shows the break below 08-Aug’s 3266 larger-degree corrective low that remains required to confirm a bearish divergence in WEEKLY momentum and, in fact, break the past year’s major uptrend.  IN this long-term regard, that 3266 level remains intact as a pivotal long-term bull risk parameter.  HOWEVER, by concluding 15-Sep’s 3763 high as the end of a 5-wave Elliott sequence up from that 3266 low, this raises the odds that the rally from 3266 may be the completing 5th-Wave of a massive sequence that dates from Sep’22’s 2192 low.  If correct, and especially considering some ancillary reasons we’ll discuss below, a reversal into a new secular bear market may have begun.

Before delving into those reinforcing bearish elements, it should be noted that the forces that have driven the secular bull trend are unlikely to evaporate into thin air, but rather over TIME.  It is during this time that a broader peak/reversal PROCESS must be considered, a process that typically include an often times extensive (2nd-wave) corrective rebuttal to the initial (1st-wave) counter-trend decline that we suspect is what is currently unfolding.  In the daily chart above, we sketch out what we believe is the remaining parts of this initial counter-trend decline and a probable 3-wave (2nd-Wave) corrective rebuttal to this decline before the real brunt of the reversal takes hold.

Traders are reminded of our three key reversal requirements:

  1. a confirmed bearish divergence in momentum of a scale sufficient to threaten the major trend (yet to be satisfied by a failure below 3266)
  2. proof of trendy, impulsive 5-wave behavior in the initial counter-trend decline (market seems to be working toward this), and, most importantly,
  3. proof of 3-wave corrective behavior on a subsequent recovery attempt (definitely not satisfied yet).

Nonetheless, the market HAS come off enough for shorter-term traders to neutralize previously recommended bullish exposure and begin to approach this market cautiously from the bear side.  Longer-term commercial players would also be advised to pare bullish exposure to more conservative levels.

As for ancillary elements warning of/reinforcing a peak/reversal threat that could be major in scope, the combination of:

  • the nicely developing potential for a bearish divergence in WEEKLY momentum amidst
  • historically extreme bullish sentiment/contrary opinion levels from
  • the extreme upper recesses of this market’s historical range shown in the monthly log chart below, and
  • an arguably complete or completing and textbook 5-wave Elliott sequence from sep’22’s 2192 low

is unique and compelling and warns of the prospect of a major reversal lower that could easily be of similar scope to that that followed 2011’s 3775 all-time high.  This suspected major peak/reversal process won’t unfold overnight.  As happened back in 2011, it took six months for the initial 1st- and 2nd-Waves to give way to the dramatic 3rd-Wave collapse.  Currently, we’re in the process of navigating the suspected 1st-Wave down of an eventual and broader topping process that we suspect will include a countering corrective rebound.  Following such a rebound however may be one of the great risk/reward selling opportunities across the entire commodities spectrum sometime in 2024.

These issues considered, a neutral-to-cautiously-bearish policy is advised for short-term traders with a recovery above 3539 required to defer this call enough to warrant moving to the sidelines.  Long-term commercial players are advised to pare bullish exposure to more conservative levels and jettison remaining exposure on a failure below 3266.  In between, we’ll be watchful for a sell-off-stemming bullish divergence in very short-term momentum that might arrest this suspected initial move south and expose that (2nd-Wave) rebuttal for a preferred risk/reward sale that could span the long-term.

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