Posted on Aug 31, 2023, 06:29 by Dave Toth
In Mon’s Technical Webcast we raised the profile of 24-Aug’s 156.25 high as a level the market needed to sustain losses below to maintain odds that the recovery attempt from 18-Aug’s 147.20 low was a correction within this month’s downtrend and also within the much broader downtrend from 18-Apr’s 204.90 high. While overnight’s break above last week’s 156.25 high is not of a scale that allows us to conclude the end of the broader 4-month downtrend, it certainly contributes to a base/correction/reversal threat to at least Aug’s downtrend from 168.30 and, for ancillary reasons discussed below, possibly a more protracted reversal.
On the heels of 21-Aug’s bullish divergence in very short-term momentum discussed in that day’s Technical Webcast, today’s reaffirmed strength above 156.25 leaves TWO lows and support of developing importance in its wake at 150.80 from last Fri and of course 18-Aug’s 147.20 low. These are the levels the market needs to relapse below to jeopardize the impulsive integrity of a more immediate move higher, render this recovery a 3-wave and thus corrective affair and re-expose the broader bear trend. Until and unless such weakness is proven, further and possibly sharp gains are anticipated. Per such, 150.80 and 147.20 are considered our new mini and short-term parameters from which the risk of non-bearish decisions like short-covers and new bullish punts can be objectively based and managed.
Now, with proof of at least short-to-intermediate-term strength identifying corrective lows and specific bull risk parameters, traders are presented with a favorable risk/reward buying opportunity from base/reversal elements that include:
- the end of AT LEAST the downtrend from 03-Aug’s 168.30 high
- the prospect that the entire decline from 18-Apr’s 204.90 high is a textbook complete 5-wave Elliott sequence as labeled in the daily log chart above
- the market’s recent proximity to the extreme lower recesses of this year’s range, and
- the return to historically low/bearish levels in our RJO Bullish Sentiment Index of the hot Managed Money positions reportable to the CFTC.
Indeed, at a current 30% reading reflecting 27K Managed Money long positions versus 62K shorts, this sentiment/contrary opinion indicator is at its lowest level since that that warned of and accompanied Jan’s significant base and reversal. While commensurately larger-degree strength above 03-Aug’s 168.30 larger-degree corrective high remains required to confirm a complete 5-wave sequence down from 204.90 to 147.20, this is a unique and compelling list of technical elements that warn of a base/correction/reversal that could be significant in scope. Most importantly however is the market’s definition of market-defined lows and support at 150.80 and especially 147.20 from which the RISK of non-bearish decisions like short-covers and bullish punts can be objectively based and managed.
These issues considered, traders, both short- and longer-term players, are advised to move to at least a neutral/sideline policy to circumvent the heights unknown of a correction or reversal higher. Additionally, we recommend at least a cautious bullish stance at-the-market (157.25) with a failure below 150.80 required to threaten this specific bullish call enough to warrant its cover. In lieu of such weakness, further and possibly sharp gains straight away should not surprise.