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In 06-Apr’s Technical Blog following that day’s bullish divergence in short-term momentum that identified 01-Apr’s low as one of developing importance, we discussed the matter of technical and trading SCALE as critical when trying to discern a mere correction versus the prospective start of a broader base/reversal environment.  Moving to the now-prompt Jul contract, 24-Mar’s 54.50 high is the analogous larger-degree corrective high and key risk parameter we’ve identified as a larger-degree risk parameter to a bearish policy.  The 240-min chart above shows that early-Apr’s rebound rallied to precisely this level before confirming a bearish divergence in short-term mo on Mon that defines Mon’s 54.50 high as the END of what appears to be a rather textbook 5-wave Elliott sequence up from 01-Apr’s 48.15 low.

The importance of a trendy, impulsive 5-wave rally from a major low is that, “theoretically” at least, this implies this rebound is NOT a complete 4th-Wave correction, but rather only the start of either a larger-degree bear market correction or start of a major reversal higher.  Throwing Elliott theory to the wind however, what we know is fact is that the market stemmed the rebound and identified 54.50 as THE high the market needs to recover above to reinforce a broader bullish count, either a larger-degree correction or major reversal higher.

To the downside, and rather obviously, 01-Apr’s 48.15 low is THE low the market needs to break to confirm the rebound to 54.50 as a (4th-Wave) correction and reinstate the bear major bear in a 5th-Wave down.  HOW the market trades on the current relapse attempt will be critical to getting an early leg up on a broader base/reversal count.  For IF the rally to 54.50 is just the (A- or 1st-Wave) start to a broader correction or major reversal higher, then by definition this relapse must:

  • bottom at a level above 01-Apr’s 48.15 low and
  • unfold in a labored, corrective 3-wave pattern.

Until and unless these two requirements are satisfied, and given the backdrop of the secular bear trend, traders are advised to first bias WITH the secular bear and act on the assumption that the early-Apr rebound to 54.50 is (4th-Wave) corrective and that a (5th-Wave) resumption of the secular bear lies ahead.

Warning of a broader base/reversal-threat environment are historically bearish sentiment/contrary opinion levels.  Indeed, the recent 19% reading in the bullish Consensus (marketvane.net) is the lowest in EIGHT YEARS.  We’ve no doubt that such understandably historically bearish sentiment levels will ultimately contribute to a base/reversal environment that will be major in scope.  But given the backdrop of the secular bear trend and the lack of a bullish divergence in momentum of a sufficient scale to render sentiment an applicable technical tool, we believe that it is premature to rely on sentiment as a reason to move to a bullish policy.  Resumed strength above 54.50 could change this dynamic quickly however.

As for continued bearish factors, the monthly log active-continuation chart below shows the market thus far sustaining losses below a TON of former support from the 54.50-to-56.50-area that, since broken last month, serves as a major new resistance candidate.  To truly know a major reversal higher is at hand, this market needs to recover into at least a 57-handle.

These issues considered, we anticipate at least a correction of early-Apr’s 48.15 – 54.50 rally that could easily retrace 50% to 61.8% (51.22-to-50.48) or more.  A relapse-stemming bullish divergence in short-term momentum from anywhere down there could present a very intriguing risk/reward opportunity from the bull side.  In lieu of these conditions being met however, a resumption of the secular bear to new lows below 48.15 should not surprise.  A recovery above 54.50 is required to not only negate either of these calls, but also introduce a base/reversal count that could be major in scope and warrant at least a cautious bullish policy.

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