Posted on Jul 31, 2023, 12:22 by Dave Toth

In 20-Jul’s Technical Webcast we identified 13-Jul’s 178.625 low as the latest smaller-degree corrective low and short-term risk parameter the market needed to stay above to avoid confirming a rally-stemming bearish divergence in momentum.  The market’s failure below this short-term but important threshold today confirms a bearish divergence in short-term momentum that, while of too small a scale to conclude a major top, IS sufficient to conclude 20-Jul’s 185.75 high as one of developing importance and THE high this market now needs to recoup to reinstates the secular bull trend.  Until and unless such strength is proven, we anticipate at least a more protracted correction lower and possibly, per some longer-term ancillary factors discussed below, a peak/reversal threat that could be massive in scope.  In this short-term regard, 20-Jul’s 185.75 high serves as our new short-term parameter from which non-bullish decisions like long-covers and cautious bearish punts can be objectively based and managed.

On a broader scale, commensurately larger-degree weakness below 21-Jun’s 171.825 larger-degree corrective low and key long-term bull risk parameter remains required to confirm a bearish divergence in WEEKLY momentum and of a sufficient scale to threaten the secular bull market.  Per such, this 171.825 level remains intact as our key long-term bull risk parameter pertinent to longer-term commercial players.

HOWEVER…..the list below is a unique and compelling confluence of factors that warns us to beware of a major peak/reversal threat:

  • an arguably textbook complete 5-wave Elliott sequence up from 22-Mar’s 159.50 low labeled above in which
    • the completing 5th-Wave from 21-Jun’s 171.825 low spanned a length almost exactly 61.8% of the net distance of Waves-1-thru-3 (159.50 – 180.175)
  • clearly waning upside momentum on a weekly basis below amidst
  • understandably historically extreme bullish sentiment/contrary opinion levels.

Reinforcing proof of a major peak/reversal threat will come from a failure below 171.825.  This said, until and unless the market recoups 20-Jul’s 185.75 high, traders are urged to ramp up here awareness of and prepare for a peak/reversal process that may be as massive as 2014’s major peak and reversal into a multi-year bear market.

The monthly log active-continuation chart below shows the magnitude of the THREE-YEAR secular bull market.  On this massive scale, one could even require a minimum failure below Mar’s 154.375 corrective low to break the bull.  At current 178-handle-area prices however, such a bull risk is highly impractical even for very long-term commercial players.  Rather, and knowing that such a major peak/reversal environment is inevitable sooner or later, even longer-term players are reminded of the old trader’s mantra of “Better bein’ out, wishin’ you were in, than in, wishin’ you were out.”

NO, we cannot conclude a major top from proof of today’s mere short-term weakness.  But we absolutely CAN identify 20-Jul’s 185.75 high as one from which non-bullish decisions like long-covers and cautious bearish punts can be objectively based and managed.  This directional script flip certainly applies to shorter-term traders with tighter risk profiles.  But even for longer-term commercial players, they have the option of paring or neutralizing bullish exposure here and now and acknowledging and accepting whipsaw risk back above 185.75 in exchange for steeper nominal risk below 171.825.

These issues considered, shorter-term traders have been advised to neutralize all previously recommended long exposure in order to circumvent the depths unknown of a bigger correction or reversal lower.  A recovery above 185.75 is required to negate this call and warrant reconsidering a cautious bullish stance.  Longer-term commercial players are advised to pare bullish exposure to more conservative levels with commensurately larger-degree weakness below 171.9825 required to jettison remaining exposure ahead of a peak/reversal threat that could be gargantuan in scope.

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