Posted on Feb 03, 2023, 08:20 by Dave Toth
The market’s gross failure today to sustain mid-week’s resumed major bull trend above late-Jan’s 1949.8-area high and resistance-turned-support and break below Tue’s 1915.5 corrective low and our short-term risk parameter discussed in yesterday’s Technical Webcast confirms a bearish divergence in daily momentum. This clear mo failure defines yesterday’s 1975.2 high as one of obvious importance and our new short-term but key risk parameter from which non-bullish decisions like long-covers can now be objectively based and managed. “Chasing” bearish exposure lower on such initial counter-trend reversals typically presents poor risk/reward merits, so traders are advised to move to just a neutral position for the time being, especially given the prospect that this break is likely just a larger-degree correction within the past quarter’s major reversal higher.
The daily log scale chart above shows today’s bearish divergence in momentum. This mo failure obviously interrupts the major bull trend. But relative to the magnitude of the past three months’ $357, 22% rally, it is of an insufficient scale to conclude anything more at this juncture than an intermediate-term correction as opposed to a broader reversal. However, the combination of this mo failure from the upper-quarter of the past couple years’ range shown in the weekly chart below and an “outside WEEK down” this week exposes cannot be underestimated as exposing a more protracted correction lower.
These issues considered, traders have been advised to move to a neutral/sideline policy for the time being to circumvent the depths unknown of suspected correction lower. We will be watchful for a countering bullish divergence in short-term momentum in the period ahead to reject/define a more reliable low from which a resumed bullish policy can be more objectively based and pursued.
Similarly, this market’s gross failure below our short-term bull risk parameter at 23.44 AND 23-Jan’s key 22.845 low resurrects a peak/correction/reversal count introduced in 05-Jan’s Technical Webcast, confirming 03-Jan’s 24.775 high as THE pivotal level this market now must recoup to confirm the past month’s sell-off attempt as a 3-wave correction and reinstate the major bull.
On a broader scale, the thus-far-labored sell-off attempt from 03-Jan’s 24.775 high easily falls into the category of a corrective/consolidative affair on the heels of Sep-Jan’s major bull trend. However, now that the market has broken 23-Jan’s 22.845 initial counter-trend low, the extent of the suspected C-Wave down from yesterday’s 24.75 high OR a more dramatic 3rd-Wave down of an alternate peak/reversal count is indeterminable until/unless stemmed by a countering bullish divergence in momentum. And given the combination of:
- the market’s rejection of the immediate area around the (24.54) 61.8% retrace of 2021 – 2022’s major 30.35 – 17.40 decline
- a bearish divergence in WEEKLY momentum
- another “outside WEEK down” this week, and
- late-Dec’s 75% reading in our RJO Bullish Sentiment Index,
traders are urged at this point to not underestimate the extent of this correction or reversal’s downside vulnerability.
These issues considered, a neutral/sideline policy is advised for the time being. We will be watchful for a relapse-stemming bullish divergence in momentum to reject/define a more reliable low from which a resumed bullish policy might be objectively reconsidered. In lieu of such, further losses are expected and could be extensive.