In Fri’s Technical Blog we discussed a confirmed bearish divergence in admittedly very short-term momentum below 31-Dec’s 3213 corrective low. The smaller size of this divergence precludes us from concluding anything more than a slightly larger-degree correction lower, with proof of strength above Fri’s 3264 high required to negate this call and reinstate the secular bull.
We also discussed the prospect that at least Dec’s rally from 3069 low was a complete 5-wave Elliott sequence prone to a more extensive correction as well as the prospect that this portion of the bull might be the completing 5th-Wave of a major sequence from 03-Oct’s 2855 low. Per such larger-degree corrective/bearish prospects, any recovery attempts should 1) unfold in a 3-wave corrective manner and 2) not recover above key prior highs like 3264.
Given the extent of the past couple days’ rebound, close proximity to Fri’s 3264 high and risk parameter and the prospect of further intermediate-term correction lower, we believe current 3240-area present an acute and “pure” risk/reward selling opportunity.
The daily chart above shows Fri’s bearish divergence in momentum and its small scale relative to the secular bull trend. This chart also shows the nice-looking prospect that the 3-month rally from 03-Oct’s 2855 low might be a complete 5-wave Elliott sequence. TO BE SURE, we would not bet the farm on a more protracted correction given such piddly weakness the past few days, but we believe risk to only 3264 from current 3240-area prices presents a pure risk/reward opportunity that could prove extraordinary.
These issues considered, traders are advised to move to a cautious bearish stance at-the-market (3240) with a recovery above 3264 negating this call, reinstating the secular bull and warranting a return to a bullish policy. Long-term players remain advised to maintain a bullish policy with commensurately larger-degree weakness below 03-Dec’s 3069 larger-degree corrective low and key risk parameter still required to threaten our long-term bullish count enough to warrant a move to the sidelines.