Posted on Feb 06, 2023, 09:24 by Dave Toth

The market’s failure Fri below 31-Jan’s 1.0830 low and our short-term but key risk parameter discussed in Thur’s Technical Webcast confirms a bearish divergence in daily momentum that, along with ancillary elements we’ll discuss below, warns that the entire rally from 28Sep22’s 0.9592 low may have ended.  On a short-term basis detailed in the 240-min chart below, the important by-products of this momentum failure are the market’s definition of 01-Feb’s 1.1059 high as one of obvious importance as THE END of at least the portion of the bull from 06-Jan’s 1.0529 low and Fri’s 1.0965 high as the latest smaller-degree corrective high.  Minimally, this market needs to recoup Fri’s 1.0965 high to jeopardize the impulsive integrity of a more protracted correction or reversal lower and re-expose the broader bull.  Per such, these levels serve as our new mini and short-term but key risk parameters from which non-bullish decisions like long-covers and bearish punts can be objectively based and managed.

What’s important about this daily but relatively smaller-degree bearish divergence in momentum shown in the daily log chart above is that it is accompanied by:

• an “outside WEEK down” last week from the immediate area around the
• (1.0980) 50% retrace of Jan’21 – Sep’22’s major bear trend from 1.2368 to 0.9592 on a weekly log scale below with
• the nicely developing potential for a bearish divergence in weekly momentum (confirmed below 06-Jan’s 1.0529 larger-degree corrective low and
• an arguably complete and textbook 5-wave Elliott sequence up from 0.9592 where
• the suspected 5th-Wave up from 06-Jan’s 1.0529 low came within 22 pips of the 1.000 progression of Wave-1 (0.9592 to 1.0054) since Wave-3 “extended”.

This is a unique and compelling list of factors that, if correct, warns of a (B- or 2nd-Wave) correction of the entire 0.9592 – 1.1059 rally that could weeks or even months and retrace more “extensively” (i.e. 61.8% or more) to near parity.  To negate this call, the bull simply needs to take out Thur’s 1.1059 high; hence it’s importance as a relatively short-term but pivotal bear risk parameter.

Finally and from an even longer-term quarterly log scale chart of the cash euro below, we’re of the opinion that the extent and impulsiveness of Sep-Feb’s rally is just the initial A- or 1st-Wave of a correction or reversal higher that could/would be massive in scope following what arguably is a complete and massive 5-wave Elliott sequence from 2008’s 1.6040 high to last year’s 0.9537 low.  But if correct, the base/reversal PROCESS to this count could easily include an EXTENSIVE (B- or 2nd-Wave) corrective rebuttal to Sep-Feb’s initial A- or 1st-Wave rally in terms of both price and, perhaps even more importantly, TIME.

When the secular bull trend ended in 2008, the market followed an initial 3-month, 37-figure decline from 1.6040 to 1.2329 with a 13-month correction to 1.5147 before the rest of the major reversal into a new secular bear market took hold.  Indeed, the forces behind the preceding secular bull market in the early-2000s took TIME to erode and reverse.  Likewise, forces that have driven a 14-year bear market aren’t going to evaporate quickly, but rather over time.  And the not unexpected and potentially extensive corrective rebuttals to Sep-Feb’s rally should be approached as potentially tremendous long-term BUYING opportunities over the very long-term.  Such a correction lower may have begun as a result of the factors discussed above and won’t be negated until/unless the market recoups 1.1059.

These issues considered, both short- and long-term traders have been or are advised to move to at least a neutral/sideline policy if not a cautiously bearish stance with a recovery above 1.1059 required to negate this call and warrant its cover.  In lieu of such strength further and possibly steep, multi-week or even multi-month weakness is anticipated straight away.