Posted on Jan 26, 2023, 12:21 by Dave Toth
In Tue’s Technical Blog we identified 20-Jan’s 86.55 smaller-degree corrective high as our new short-term but key risk parameter the market needed to sustain losses below to maintain a more immediate bearish count. The hourly chart below shows the market’s recovery above this level this morning, confirming a bullish divergence in admittedly short-term momentum that may be of an insufficient scale to conclude the end of the past month’s 13.7-cent, 14% swoon. But given that this mo failure stems from the extreme lower recesses of the past year’s range amidst the return to historically bearish sentiment levels, the risk/reward metrics of a continued bearish policy have become questionable enough to warrant moving to at least a neutral/sideline position.
The important by-product of today’s bullish divergence is the market’s definition of today’s 83.70 low as the prospective end to the past month’s collapse and start of a more protracted correction or reversal higher. Per such, this 83.70 level is considered our new short-term risk parameter from which traders can objectively base non-bearish decisions like short-covers and cautious bullish punts as clearly a relapse below 83.70 is required to negate this call and reinstate the bear.
Stepping back, again, the magnitude of the past month’s meltdown from 27-Dec’s 97.40 high precludes us from concluding the end of this decline following a relatively minor bullish divergence in momentum. But the COMBINATION of:
- the Apr contract’s close proximity to the extreme lower recesses of its past year’s range
- a bullish divergence in admittedly short-term mo
- the return to the past 1- and 2-year lows in sentiment/contrary opinion as indicated by our RJO BSI and the Bullish Consensus (marketvane.net), and
- an “outside day up” (lower low, higher high and probable higher close than yesterday’s range and close)
is a unique and compelling one that we believe puts the onus back on the bear to continue to BEHAVE LIKE ONE by resuming the downtrend below 83.70. Until and unless this happens, we believe the risk/reward merits shift towards at least an interim correction higher of indeterminable scope.
Lastly, we’d again like to remind both short- and longer-term traders of the market’s return to the middle-half bowels of its massive but lateral historical range shown in the monthly log active-continuation chart below where the odds of aimless whipsaw risk are approached as higher, warranting a more conservative approach to directional risk assumption. Under such a more conservative approach, identifying tighter but objective risk parameters like 86.55 and, now, 83.70 is critical to managing directional risk exposure.
These issues considered, traders have been advised to move to a neutral/sideline position as a result of today’s recovery above 86.55 in order to circumvent the heights unknown of a suspected correction or reversal higher. A relapse below 83.70 is required to negate this call, reinstate the bear and expose potentially sharp losses thereafter. Proof of labored, corrective 3-wave behavior on a retest of today’s 83.70 low may present a favorable risk/reward opportunity from the bull side.