Today’s clear, impulsive break below 02-Dec’s 381.0 initial counter-trend low is the next reinforcing step to a potentially major peak/reversal count we introduced in 03-Dec’s Technical Blog. This resumed weakness leaves 03-Dec’s 391.0 high in its wake as the latest smaller-degree corrective high and new short-term risk parameter the market is now minimally required to recoup to threaten a bearish count, possibly render the sell-off attempt from 25-Nov’s 400 high a 3-wave and thus corrective affair and re-expose this year’s major bull. Until and unless such 391+ strength is shown, and especially if the market breaks the pivotal 375-to-373.8-area, further and possibly steep, protracted losses should not surprise.
As recently discussed, the unique and compelling factors that contribute to a major peak/reversal threat include:
- the nicely-developing potential for a bearish divergence in daily momentum (above)
- confirmed on an intra-day break below 02-Nov’s 373.8 larger-degree corrective low and/or a close below that day’s 375.1 low close shown below
- the prospect that the market has completed a major 5-wave Elliott sequence up from late-May’s lows as labeled above and below
- historically frothy bullish sentiment/contrary opinion levels not seen since at least Jun’18 and, in the case of the Bullish Consensus (marketvane.net), since Jun 2014!
- the market’s proximity to and rejection thus far of the upper-quarter of its massive FIVE YEAR range shown in the weekly log chart below.
This is a unique, compelling and opportunistic list of peak/reversal factors that are, quite frankly, TYPICAL of major peak/reversal-threat environments we see time and time again across all markets and market sectors. As is typically the case, the huddled masses have their bullish necks sticking out in a major way. Such bullishness is quite appropriate, until the market breaks the uptrend with a confirmed bearish divergence in momentum, the combination of which leaves the market vulnerable to potentially steep losses as the bulls capitulate.
These issues considered, a bearish policy and exposure remain advised for shorter-term traders with a recovery above 391 required to threaten this call enough to warrant its cover. Longer-term players have been advised to pare bullish exposure to more conservative levels and neutralize remaining exposure and reverse into a bearish policy on a close below 375 and/or an intra-day break below 373.8. The market’s downside potential below 373.8 is indeterminable and potentially severe.