Posted on May 04, 2023, 10:40 by Dave Toth

After closing last Fri at a new high for the 6-1/2-month uptrend and at the highest level since last Aug, the market’s failure today below 26-Apr’s 4068 smaller-degree corrective low and short-term risk parameter discussed in Mon’s Technical Blog confirms a bearish divergence in daily momentum that breaks the uptrend from at least 13-Mar’s 3839 larger-degree corrective low.  This momentum failure defines Mon’s 4206 intra-day high as the end of a textbook 5-wave Elliott sequence from Mar’s 3839 low as THE level this market now needs to recoup to resurrect a broader bullish count.  Until and unless such strength is shown, we anticipate at least a correction of Mar-May’s 3839 – 4206 rally and possibly a more protracted reversal lower.  In this regard, Mon’s 4206 high serves as our new short-term but key risk parameter from which shorter-term traders with tighter risk profiles can objectively base non-bullish decisions like long-covers.

Per any new bearish exposure, the market has only satisfied one of our three key reversal requirements on a short-term basis thus far, a confirmed bearish divergence in momentum.  It’s debatable whether this week’s slide is unfolding on an impulsive 5-wave manner consistent with a new broader move south and it certainly has yet to satisfy the requirement of proof of 3-wave corrective behavior on a subsequent recovery attempt.  Per such, and unless one just wants to take a flyer at new bearish exposure that acknowledges risk to 4206, we believe it’s premature to initiate new bearish exposure.

Nonetheless, to mitigate any intermediate-to-longer-term bearish prospects and resurrect the broader bull, this market now needs to recoup Mon’s 4206 high.

From a broader daily perspective, we’ve discussed this market’s flagging upside momentum for the past few weeks.  Today’s break below 4068 CONFIRMS the divergence that allows us to conclude Mon’s 4206 high as the END of the uptrend from 13-Mar’s 3839 larger-degree corrective low, nothing more, nothing less.  In effect, the short-term trend is down within the still-arguable longer-term 6-1/2-month uptrend.  To break the 6-1/2-month recovery from 13Oct22’s 3502 key low, commensurately larger-degree weakness below 13-Mar’s 3839 larger-degree corrective low and key long-term bull risk parameter remains required.  What the market has in store for us between 4206 and 3839 is anyone’s guess and brings the technical and trading matter of SCALE to the forefront.

If you’re a longer-term institutional trader or investor, today’s momentum failure is of an insufficient scale to conclude a larger-degree correction or reversal lower that would require neutralizing a bullish policy.  If you’re a shorter-term trader, risking bullish exposure to 3839 is outside the bounds of your risk profile.  Per such, non-bullish action is advised as a result of today’s momentum failure with a recovery above 4206 required to negate this call, reinstate the bull and warrant a return to a bullish camp.


….They say this market often times “climbs a wall of worry“.  While there’s certainly plenty to worry about and while the past 6-1/2-month recovery is not unimpressive, against the backdrop of 2022’s major downtrend this recovery remains well within the bounds of a mere (B- or 2nd-Wave) correction within a massive peak/reversal process.  And the 2-steps-up-1-step-down manner in which this market has grinded higher for MONTHS is characteristic of exactly such a correction.

Can we CONCLUDE Mon’s 4206 high as the END of the prospective correction from last Oct’s 3502 low?  Absolutely not, because it’s of too small a scale.  What we CAN conclude is Mon’s 4206 high as a short-term but key parameter from which the risk of non-bullish decisions like long-covers can be objectively based and managed.  Of course, we will keep a keen eye on proof of further impulsive 5-wave behavior to the downside and, most importantly, 3-wave corrective behavior on a subsequent recovery attempt.  If/when these requirements are met, the case for the broader bear’s return will grow.  In the end however, a failure below 13-Mar’s 3839 low remains required to, in fact, break the 6-1/2-month uptrend, render Oct-May’s recovery attempt a 3-wve and thus corrective structure and re-expose last year’s major bear market.

These issues considered, shorter-term traders have been advised to move to a neutral/sideline policy.  For those who want to take a gander at the bear side, this is fine, but know that your only objective bear risk parameter is Mon’s 4206 high.  Longer-term players remain advised to maintain a bullish policy and exposure with a failure below 3839 required to negate this call and warrant its cover and reversal into a longer-term bearish policy.  Longer-term players also have the option of paring bullish exposure to more conservative levels now, acknowledging and accepting whipsaw risk above 4206 in exchange for much steeper nominal risk below 3839.

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