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Resumed S-T S&P Strength Insufficient to Conclude Bottom, But Encouraging

Posted 01/04/2019 1:21PM CT | RJO Market Insights

On the heels of 27-Dec’s bullish divergence in short-term momentum discussed in 29-Dec’s Technical Blog,  today’s resumed recovery above 28-Dec’s 2523 initial counter-trend high reaffirms at least the intermediate-term uptrend and leaves overnight’s 2438 low in its wake as the latest smaller-degree corrective low from which non-bearish decisions like short-covers and cautious bullish punts can be objectively rebased and managed.  This resumed strength STILL is not of a scale sufficient to conclude a more significant rebuttal to 4Q18’s meltdown, but it’s encouraging and reinforces rejected/defined lows below the market like 2438 and certainly 26-Dec’s 2317 low as risk parameters from which bullish decisions can be objectively based and managed.

E-Mini S&P 500 240 Minute Chart

 

E-Mini S&P 500 Daily Chart

From  a longer-term perspective the daily (above) and weekly (below) log scale charts still show the market below former 2603-to-2626-area support that, since demolished on 17-Dec, remains intact as pivotal resistance this market is minimally required to recover above to expose the entire Sep-Dec plunge as a 3-wave event that only then can be considered part or all of a correction consistent with the secular bull.  As stated above however, today’s resumed strength is encouraging and now puts the onus on the bull to recoup that 2626-area.

Market sentiment levels have been understandably historically bearish and typical of broader base/reversal environments.  With today’s resumed recovery sentiment/contrary opinion can be considered an important and more applicable reinforcing factor to a bullish count.

E-Mini S&P 500 Weekly Chart

 

Finally, the monthly log chart below shows Sep-Dec’s 21% swoon basically equaling the biggest correction this market has experienced since Mar 209’s major low:  May-Oct’11’s 22% setback from 1374 to 1068.  Combined with bearish sentiment levels that haven’t been seen in at least 2-1/2 years and, in the case of the Bullish Consensus, since that Oct 2011 period, it’s not hard to build a case that the worst may be over, at least for the time being.

Given the magnitude of Sep-Dec’s collapse, we cannot ignore a healthy but intra-range recovery to the upper-quarter of the 2947 – 2317-range before another intra-range swoon hits later in 2019.  But by the same token and as happened in 2011-2012, the past couple weeks’ rebound cannot be ignored as the baby steps of a resumption of the secular bull.  Per such, shorter-term traders remain OK to maintain a neutral-to-cautiously bullish stance with a failure below 2438 negating this specific call and warranting its cover.  Long-term players are advised to pare bearish exposure to more conservative levels and neutralize the exposure altogether on a recovery above our long-term risk parameter at 2626.

E-Mini S&P 500 Monthly Chart

 

MAR 10-Yr T-NOTES

Given the relative inverse correlation of late between stocks and Treasuries, today’s bearish divergence in short-term momentum below our short-term risk parameter at 122.07 is not surprising and establishes yesterday’s 123.055 high as one of developing importance and possible the END of a 5-wave Elliott sequence up from 08-Oct’s 117.135 low.  In this regard we are identifying 123.06 as our new short-term risk parameter from which non-bullish decisions like long-covers and cautious bearish punts can now be objectively based and managed.

10-Year Note Mar '19 240 Min Chart

 

10-Year Note Daily Chart

On a broader scale the market has not relapsed nearly enough to conclude the end of the rally from 06-Oct’s 117.135 low.  But as pointed out in just yesterday’s Technical Blog, the 122-handle-area is a major resistance candidate that the market may be acknowledging.

10-Year Note Weekly Chart

 

We also pointed out the 2.58%-area in 10-yr yields as the analogous support candidate that it tinkered with yesterday.  To be sure, MORE evidence of trendy, impulsive behavior down and corrective behavior on recovery attempts is needed to reinforce a broader peak/reversal-threat environment in T-notes and base/reversal count in stocks, but while yesterday’s 123.055 high remains intact as resistance and a short-term risk parameter, the market has presented a condition and opportunity from which to position for a move lower.  Per such, shorter-term traders have been advised to move to a neutral/sideline position and are next advised to approached rebound attempts to 122.16 OB as corrective selling opportunities with a recovery above 123.06 required to negate this call and warrant its cover.  Long-term players are advised to pare bullish exposure to more conservative levels and jettison the position altogether on a failure below 120.28.

10-Year Yield Weekly Chart

RJO Market Insights