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Navigating Perceived Lofty S&P Levels, Corrections a Matter of SCALE

Posted 05/02/2019 8:32AM CT | RJO Market Insights

With yesterday afternoon’s relative swoon below Tue’s 2926 very minor corrective low, the 240-min chart below shows that the market confirmed a bearish divergence in momentum on the smallest of scales.  Of course this mo failure is grossly insufficient to conclude anything more than another interim and minor corrective hiccup within the secular bull trend.  But one thing that this admittedly minute mo failure does confirm is yesterday’s 2961 high as a micro risk parameter from which any non-bullish decisions can be objectively based and managed.

E-Mini S&P 500 240 Min Chart

 

Even from a short-term perspective, 18-Apr’s 2889 next larger-degree corrective low still serves as a short-term risk parameter the market should be required to fail below to confirm a threatening bearish divergence in daily momentum below.  And even then, the market would still remain above former 2866-area resistance from mid-Mar that would be considered a support candidate.

Taking the requisite step back to consider the entire uptrend from 26-Dec’s 2317 low, weakness below 25-Mar’s 2789 corrective low remains arguably required to break this uptrend.  Per such this 2789 larger-degree corrective low remains intact as our key long-term risk parameter to a still-advised bullish policy for longer-term players.

Identifying these various corrective lows and risk parameters is important relative to technical and trading SCALE and the discipline is trying to navigate a mere correction versus a larger-degree reversal lower.  It’s quite OK to take defensive steps as a result of yesterday’s micro mo failure, but this decision comes in exchange for and acknowledgement of whipsaw risk of buying those positions back on a recovery above yesterday’s 2961 high and micro risk parameter.  To conclude a major correction or reversal lower as a result of one day’s worth of minor slippage is, of course, ridiculous.  But every major correction or reversal STARTS with exactly such a micro mo failure.  The key now for the bear is building on this initial slip with further impulsive proof of weakness below commensurately larger-degree corrective lows and risk parameters like 2889 and 2789.

E-Mini S&P 500 Daily Chart

 

E-Mini S&P 500 Weekly Chart

On a historic basis shown in the weekly log chart above and monthly log chart below, we’ve circled and used red lines to show past cases where the market “broke out” to a new all-time high like the market did this week over 21Sep18’s 2947 high.  In every case the market made it very challenging for bulls with corrective setbacks back below those former highs and resistance that we must approach as new support candidates.  And in some cases these corrections were extensive.  If the market has another such challenging environment in store this time, the corrective low iterations we’ve highlighted at 2889 and certainly 2789 will come into play.  A recovery above yesterday’s 2961 high mitigates this condition and dilemma, at least for the time being, and will leave new corrective lows and risk parameters in its wake around which we’ll adjust upward our bull risk policy and decisions-making points.

These issues considered, yesterday’s micro mo failure below 2926 is sufficient for scalpers to move to the sidelines and even take a whack at cautious bearish exposure with a recovery above 2961 required to negate this call and warrant its cover.  Otherwise, a bullish policy and exposure remain intact for shorter-term traders and long-term players with a failure below 2889 required for traders to move to the sidelines and longer-term players to pare bullish exposure to more conservative levels.  Commensurately larger-degree weakness below 2789 remains required to threaten enough of a correction lower of indeterminable scope for even long-term players to move to the sidelines.  In effect then and from a shorter-term perspective, we believe the market has identified 2961 and 2889 as the key directional triggers heading forward.

E-Mini S&P 500 Monthly Chart

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