Posted on Apr 28, 2023, 07:31 by Dave Toth
For months now, we’ve been discussing the incessant lateral range that has gripped this market since mid-Nov and where the odds of aimless whipsaw risk have been approached as high. Complicating the matter, this “mere” six-month-chop is a miniscule subset of the middle-half bowels of this market’s massive but lateral historical range shown in the monthly log chart below. It’s like a baby hoppy-choppy kangaroo sitting in the pouch of Big Mamma hoppy-choppy kangaroo.
In such rangey, lateral environments, the odds of hitting on a big directional 3rd-wave-type bet are poor, with abhorrent risk/reward metrics. So what we endeavor to do in these rangey environments is adopt a trading-range approach whereby we wait for a bullish divergence in momentum from the lower-quarter of the range to take a cautious bullish punt and, conversely, a bearish divergence in mo from the upper-quarter of the range to take a bearish punt. This approach also tries to avoid initiating directional exposure from the middle-half of the range where the risk/reward merits of directional exposure are the worst, unless the market provides a much tighter but objective risk parameter from which to do so.
On a weekly basis below, a few things stand out:
- the extent and impulsiveness of last Nov’s rebound that defines 31-Oct’s 70.21 low as the end of the decline from Aug’s 119.59 high, exposing a correction or reversal higher,
- grotesquely lateral corrective/consolidative behavior since Nov’s 89.92 high in the Mar contract that warns of an eventual resumption of Nov’s uptrend that preceded it (hopefully sometime in the next millennium),
- still-historically-bearish levels in the Bullish Consensus (marketvane.net) measure of market sentiment/contrary opinion that are typical of broader base/correction/reversal environments.
From an intermediate-to-longer-term perspective, these factors, we believe still give odds toward at least one more good poke to the upside above Nov-Jan highs around the mid-to-upper-89-handle. To mitigate this bullish count, the market needs to relapse below at least 24-Mar lows, 75.70 in the then-prompt May contract and/or 76.34 in the now-prompt Jul contract.
Drilling down further, the daily chart below shows the market smack in the middle of the 6-month range. Taking a longer-term bullish punt around here and risking to 24-Mar’s 76.34 low or taking a bearish punt around here and risking to 19-Apr’s 85.23 high possess lousy risk/reward merits and are ill-advised. Which way is baby and/or Big Mamma kangaroo gonna hop next???
As stated above, sometimes the market will provide a much tighter risk parameter within the range and also the improved odds of at least a short-term directional bet that, IF consistent with a longer-term view, warrants a directional bet. The 240-min chart below shows one of these prospects. The potential for a bullish divergence in momentum is developing nicely and will be confirmed on a recovery above 24-Apr’s 81.81 high. If confirmed, this divergence will leave Tue’s 77.68 low in its wake as the latest, intra-range corrective low the market would then have to fail below to negate a bullish punt that have reward sights set on at least the upper-quarter of the 6-month range above 19-Apr’s 85.23 high and possibly a breakout above the upper boundary of the range.
From a shorter-term perspective, such risk/reward metrics still aren’t great, but at least a cautious bullish bet would be consistent with our long-term count calling for an eventual resumption of Nov’s rally. These issues considered, traders remain advised to maintain a neutral/sideline policy due to the market’s position in the middle of the six-month range. For those with an “outback spirit”, a gander at a cautious bullish stance from current 81.40-area levels would be advised with a failure below 77.68 required to negate this call and warrant its cover.