This morning’s break above 11-May’s 8.65 high and our key risk parameters confirms a bullish divergence in daily momentum that threatens Jan-Apr’s major downtrend and confirms a larger-degree correction OR reversal higher. The hourly chart below shows that this continued basing behavior leaves smaller- and larger-degree corrective lows in its wake at 8.47 and 8.40, respectively, that the market is now obligated to fail below to threaten and then negate a broader base/reversal count. Per such, these specific levels serve as our new short- and longer-term risk parameters from which non-bearish decisions like short-covers and bullish punts can now be objectively based and managed.
The daily chart below shows the bullish divergence in momentum resulting from today’s break above 8.65. This strength, in fact, breaks the downtrend from at least 27-Mar’s 8.87 high and possibly from 02-Jan’s 9.83 high and exposes the new longer-term trend as up from 28-Apr’s 8.37 orthodox low that arguably competed a 5-wave Elliott sequence down. Might the past FIVE WEEKS’ price action be merely (4th-Wave) corrective within major downtrend? Absolutely. No question, given the magnitude of Jan-Apr’s downtrend. BUT, if this is the case, and the portion of the rally from 22-May’s 8.40-3/4 low is the completing C-Wave of that correction, then the market’s got to fail below our precise risk parameters at 8.47 and eventually, 8.40. Until and unless such weakness is shown, there’s no way to know that the rally from 8.40-3/4 isn’t the dramatic 3rd-Wave of a major reversal higher, a count that would call for steep, accelerating gains straight away.
Betting on the bearish count and against the bullish one has a major discipline flaw since the market has exposed the longer-term trend as up: there is no objective risk parameter to bearish decisions shy of at least 27-Mar’s 8.87 next larger-degree corrective high. Neutralizing bearish exposure at that point, let alone then having to enter into new bullish exposure and consider risk levels thereafter is grossly more inefficient than doing saw now around the 8.65, 8.47 and 8.40 levels that are specific and objective.
Finally and as recently discussed, two other facts reinforce a broader base/reversal count:
- the market’s proximity to the extreme lower recesses of the past couple years’ range that questions the risk/reward merits of a bearish policy and
- historically bearish sentiment/contrary opinion levels rendered APPLICABLE now that the market has confirmed a bullish divergence in daily mo that has rejected/defined levels from which non-bearish decisions can be objectively based and managed.
Indeed, recent 20% and 19% levels in the Bullish Consensus (marketvane.net) are the lowest since 2001! COMBINED with the bullish facts discussed above, further and possibly steep, sustained gains straight away should not come as a surprise as the market is arguably VULNERABLE to higher prices.
These issues considered, a bullish policy remains advised for shorter-term traders with a failure below 8.47 required to negate this specific call and warrant a move to the sidelines. Longer-term players have been advised to neutralize remaining bearish exposure and are advised to establish a new bullish policy and exposure from current 8.65-area levels OB with a failure below 8.47 required to pare exposure to more conservative levels and a failure below 8.40 to jettison the position altogether ahead of a resumption of the major bear trend. In lieu of such weakness, further and possibly steep, sustained gains are anticipated straight away.