While, on a smaller scale, today’s break below last week’s 4.3055 low obviously reaffirms the past couple weeks’ slide and leaves Fri’s 4.4215 high as the latest smaller-degree corrective high and minimum level this market needs to recoup to arrest this decline, what’s increasingly important to a much broader peak/reversal threat is the clear 5-wave impulsiveness of this decline. This is especially important given that the extent of this relapse raises the odds dramatically that 27-Jul’s 4.6275 high completed a 3-wave and thus corrective structure that contributes to a peak/reversal threat that could be major in scope. Per such, we’re identifying 4.4215 and 4.6275 as our new short- and long-term risk parameters from which traders are advised to base and manage the risk of non-bullish decisions like long-covers and new bearish punts.
Indeed, as a direct result of the extent and impulsiveness of the past week’s relapse, Jun-Jul’s recovery attempt from 4.0880 to 4.6275 is about as textbook a 3-wave and thus corrective event as it gets. On the heels of May-Jun’s (suspected A- or 1st-Wave) down and until negated by a recovery above 4.6275, we anticipate a (C- or 3rd-Wave) resumption of May-Jun’s downtrend to levels potentially well below 4.0880 as part of a major correction or reversal lower.
Contributions to this count include:
- upside momentum that’s been waning all year
- historically frothy sentiment/contrary opinion levels
- an arguably complete (textbook even) 5-wave Elliott sequence from Mar’20’s 1.9725 low as labeled in the weekly log chart below, and
- the market’s rejection thus far and inability to sustain gains above 2011’s former all-time high at 4.6495.
If there’s a time and place to be leery of bullish exposure from a long-term perspective, the factors cited above warn that it is here and now, with a recovery above 4.6275 minimally required to mitigate this threat.
These issues considered, a bearish policy remains advised for shorter-term traders with a recovery above at least 4.4215 required to threaten this call and warrant its cover. Longer-term commercial players are advised to neutralize previous long-term bullish exposure and move to a cautious bearish policy. This said however, the risk/reward metrics of initiating directional exposure from the middle of the past couple months’ range are poor. We will be watchful for proof of smaller-degree corrective behavior on an intra-range recovery attempt for a preferred risk/reward selling opportunity. In the end however, until and unless negated by a recovery above 4.6275, we believe this market is in the early stages of a major correction or reversal lower to levels well below 21-Jun’s 4.0880 low. Per such, it may be worth noting that even a Fibonacci minimum 38.2% retrace of 2020-21’s 1.9725 – 4.8880 rally doesn’t cut across until the 3.45-area on a log scale basis above.