Posted on Mar 29, 2023, 09:28 by Dave Toth
In recent updates we’ve discussed the importance of 17-Mar’s 7.13 smaller-degree corrective high as a short-term bear risk parameter. The hourly chart below shows this morning’s recovery above this level that confirms a bullish divergence in daily momentum and, in fact, breaks Feb-Mar’s portion of the major bear trend. This bullish divergence in momentum defines 22-Mar’s6.54 low as one of obvious importance and our new short-term risk parameter from which traders can objectively base non-bearish decisions like short-covers and cautious bullish punts.
This hourly chart (above) also shows the developing potential for a countering bearish divergence in momentum that will be considered confirmed if the market cannot sustain short-term gains above yesterday’s 6.95 very minor corrective low. There are a couple of reasons why this very short-term bull risk parameter may come into play. First, as the daily log chart below shows, this recovery is only now engaging a key area of former support around the 7.21-to-7.35-area that, since demolished back in late-Feb/early-Mar, is considered a new key resistance candidate. Secondly, given the magnitude of the secular bear trend, it would be unusual for the “gaps” that have been opened within the past week’s recovery shown in the hourly chart above to remain open as all the forces that have driven such a major bear are unlikely to evaporate in such short order that any prospective initial counter-trend spike can sustain supposed strength reflected by these gaps.
A failure below 6.95 is not enough to conclude the past week’s pop as a complete bear market correction ahead of a resumption of the major bear to new lows below 6.54. Only a relapse below 6.54 will allow us to conclude such. but a failure below 6.95 WILL allows us to confirm at least a (B- or 2nd-wave) corrective rebuttal to the current pop while also positioning for the possible resumption of the secular bear.
IF, alternatively, this market is poised for a more protracted correction higher, further proof of strength above at least the 7.35-area should be required. Per such, we believe this market has identified 6.95 and 7.35 as the key directional flexion points over the near-term
Stepping back even further, the weekly log chart of the May contract below shows the magnitude of the secular bear market from May’22’s 12.42 high as well as waning downside momentum and understandably historically bearish sentiment/contrary opinion levels. While commensurately larger-degree strength above 14-Feb’s 8.08 larger-degree corrective high and key long-term bear risk parameter remains required to CONFIRM this divergence and break the downtrend from even Oct’s 9.67 high, the extent to which the world is bearish on this market warns us to beware a vulnerability to higher prices. This vulnerability may become more obvious if/when this market can recover above the 7.35-area noted above.
In effect, the not uncommon matter of technical and trading SCALE is once again at the forefront of navigating this market. The short-term trend is up within the still-arguable long-term downtrend. Traders are advised to toggle directional biases and exposure around these levels- 6.95, 6.54, 7.35 and 8.08- commensurate with their personal risk profiles. Short-term traders have been advised to move to at least a neutral/sideline position as a result of today’s bullish divergence above 7.13. Chasing new bullish exposure on this prospective initial poke higher presents poor risk/reward metrics unless one is comfortable with whipsaw risk below 6.95. Longer-term commercial players remain advised to maintain a bearish policy and exposure with a recovery above 7.35 required to pare exposure to more conservative levels and commensurately larger-degree strength above 8.08 to neutralize remaining exposure ahead of a base/correction/reversal threat that could be significant in scope.
