Posted on Oct 04, 2022, 07:18 by Dave Toth

Overnight’s recovery above last week’s 3751 smaller-degree corrective high confirms a bullish divergence in short-term momentum and defines yesterday’s 3571 low as the end of the portion of the major bear trend from 13-Sep’s 4175 high.  The 240-min chart below shows a probably complete 5-wave Elliott sequence down from 4175 that is now prone to a correction.  As a result of this short-term momentum failure, yesterday’s 3571 low serves as a short-term risk parameter from which shorter-term traders with tighter risk profiles can objectively base non-bearish decisions like short-covers and cautious bullish punts.  Clearly, a relapse below 3571 is now needed to confirm this bear market correction count and reinstate the major downtrend.

ON the next larger-degree shown in the daily log chart below and especially following last week’s break below Jun’s key 3639 low, the secular bear trend remains intact and should not surprise by its continuance or acceleration until negated by a commensurately larger-degree recovery above 16-Aug’s pivotal 4328 high and key long-term bear risk parameter.  This week’s rebound is advised to first be approached as a correction within this broader bear.  On an interim basis however, we have identified 07-Sep’s 3883 low as a 1st-Wave low of an eventual and major 5-wave sequence down from 4328.  For traders who are neither very short-term nor long-term such that 3571 or 4328 are flexion points commensurate with their personal risk profiles, 07-Sep’s 3883 low serves as the best and most objective risk parameter we can identify at this time.  A recovery above 3883 won’t necessarily negate our long-term bearish count.  But as there are no technical levels of any merit between 3883 and 13-Sep’s 4175 suspected 2nd-Wave high, we feel that that 3883 level works well as an intermediate-degree bear risk parameter.

Per a count calling this week’s bounce a mere correction within the major bear market, we will be watchful for a recovery-stemming bearish divergence in short-term momentum, especially from a level shy of 3883, to reject/define a more reliable high and resistance from which to resurrect a bearish count and policy pertinent to shorter-term traders.

From a much longer-term perspective, the weekly log chart below shows last week’s resumption of this year’s major peak/reversal and confirmation that all three of our three key reversal requirements have been satisfied on a WEEKLY scale:

  1. a confirmed bearish divergence in momentum
  2. proof of trendy, impulsive 5-wave behavior on the initial counter-trend decline, and, most importantly,
  3. proof of 3-wave corrective behavior on a subsequent recovery attempt (that stalled at the exact 61.8% retrace of Jan-Jun’s 1st-Wave decline).

On this major scale and until/unless the market recoups 16-Aug’s 4328 corrective high, a major bear trend is intact and should not surprise by its continuance or acceleration.  It is interesting to point out that this week’s 3571 low is only a smidge away from the (3550) 38.2% retrace of 2020 – 2022’s entire 2174 – 4808 decline amidst historically bearish levels in the Bullish Consensus ( and the AAII Sentiment Survey that arguably are warning signs of a prospective bottom.  But to conclude the end of a 9-month, 25% decline requires significantly more basing behavior than a 2-day pop.  MINIMALY, we would have to see a trendy, impulsive 5-wave rally well above 07-Seps 3883 low AND THEN proof of 3-wave corrective behavior on a subsequent relapse attempt to consider an alternate bullish count.  Until and unless such behavior is proven, longer-term traders and investors are advised to first approach this week’s bounce as another selling opportunity.

These issues considered, shorter-term traders with tighter risk profiles are advised to move to a neutral/sideline position to circumvent the heights unknow of a suspected correction within the secular bear trend.  We will be watchful for a countering bearish divergence in short-term mo to define a more reliable high and risk parameter from which to resurrect a bearish policy.  A bearish policy remains advised for long-term players with a recovery above at least 3883 required to move to a neutral/sideline position.

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