Posted on Sep 29, 2023, 08:33 by Dave Toth
Overnight’s continued slide, this time below Tue’s 2.4612 low, reinforces our peak/reversal-threat count introduce in Mon’s Technical Blog and leaves Wed’s 2.5791 high in its wake as the latest smaller-degree corrective high this market is now required to recover above to arrest the past two weeks’ developing downtrend and expose at least a (B- or 2nd-Wave) corrective rebuttal to this decline or a resumption of the 5-month uptrend. Per such, we’re defining 2.5791 as our new short-term parameter from which shorter-term traders can objectively base non-bullish decisions like long-covers and cautious bearish punts.
This tighter but objective bear risk parameter at 2,5791 will come in handy given the likelihood of at least a suspected (B- or 2nd-Wave) corrective rebuttal to the past couple weeks’ suspected initial (A- or 1st-Wave) down of a broader peak/correction/reversal process. As the forces that have driven the impressive, impulsive rally from 04-May’s 1.9746 low are unlikely to evaporate quickly, topping “processes” typically include and often times extensive corrective rebuttal to the initial counter-trend move. The TIME that passes gives the market time to assess eroding fundamentals that the technicals warn of within that initial counter-trend break. If/when that rebuttal is arrested once again with another bearish divergence in momentum from a level south of, in this case, 15-Sep’s 2.7021 high, the market then provides further evidence consistent with a broader peak/reversal count. It is for these reasons why we believe chasing bearish exposure on an initial counter-trend move presents poor risk/reward metrics. This is also the reason why many black-box algorithmic systems that are always in the market have such abysmal Sharpe ratios.
Further weakness below 23-Aug’s 2.4086 larger-degree corrective low will confirm a bearish divergence in WEEKLY momentum, recognize 15-sep’s 2.7021 high as THE END of a textbook 5-wave sequence up from 04-May’s 1.9746 ow and confirm a major correction or reversal lower. This will not preclude however a subsequent (B- or 2nd-Wave) corrective rebuttal to this month’s initial decline.
What’s at stake here with respect to navigating this prospective peak/reversal threat is that, from a very long-term perspective, this year’s entire recovery attempt is arguably just a (major B- or 2nd-Wave) correction of last year’s INITIAL decline in a mammoth, multi-quarter peak/reversal of the 2020 – 2022 secular bull trend that, if correct, warns of sub-2.00 levels next year. The market’s gross failure in Jun’22 to sustain all-time highs above the 2012 and 2008 high amidst understandably stratospheric sentiment levels and the extent and impulsiveness of last year’s decline are elements typical of major peak/reversal environments. And thus far, the extraordinarily labored recovery attempt from Dec’22’s 2.02/2.05-area lows and 50% retracement of last year’s decline has (B-or 2nd-Wave) corrective bear-flag behavior written all over it.
These issues considered, a neutral/sideline policy remains advised for shorter-term traders as chasing bearish exposure “down here” presents poor risk/reward metrics. Larger-degree weakness below 2.4086 warrants the cover of any remaining bullish exposure by longer-term commercial players as the remaining depth of this suspected initial counter-trend decline is indeterminable. As for new bearish exposure, we prefer to wait for a suspected corrective rebound and rebound-stemming bearish divergence in mo for a preferred risk/reward selling opportunity. For those who can’t wait to protect downside risk, we believe Wed’s 2.5791 is your best bet for a bear risk parameter at this time.