Posted on Jan 26, 2024, 07:12 by Dave Toth.
Overnight’s poke above Mon’s very minor corrective high at 134.66 confirms a bullish divergence in very short-term momentum. This mo failure defines yesterday’s 133.55 low as one of developing importance and possibly the end of a correction of Oct-Dec’s rally we introduced in 02-Jan’s Technical Blog. While commensurately larger-degree strength above 12-Jan’s 135.99 next larger-degree corrective high and short-term risk parameter remains required to break Dec-Jan’s downtrend, overnight’s bullish divergence in admittedly very short-term momentum allows us to conclude yesterday’s 133.55 low as a mini parameter from which short-term traders can objectively base non-bearish decisions like short-covers and cautious bullish punts. For needless to say, a relapse below 133.55 will nullify the divergence, render the pop from that low another mere correction and reaffirm the larger-degree correction lower. In effect, the market has identified 133.55 and 135.99 as the short-term but key directional flexion points heading forward.
On a broader scale, our challenge is to determine the scale of the past month’s setback within what we believe is a major, multi-month base/correction/reversal count up from 04Oct23’s 126.62 low. We’re of the long-term opinion that the rally from 126.62 to 27-Dec’s 138.84 high is all of most of the initial A- or 1st-Wave of a major correction or reversal of the 3-year secular bear market from Dec’20’s 178.77 orthodox high. Given the extent of the rally from 23-Oct’s 127.18 low to Dec’s 138.84 high, the past month’s setback may only be the 4th-Wave within the initial 5-wave sequence up.
An alternate count would contend that the initial A- or 1st-Wave rally ended at 138.84 and that the market is still in the throes of the broader B- or 2nd-Wave correction of Oct-Dec’s 126.62 – 138.84 rally that could still have protracted concessions lower. While the importance of 27-Dec’s 138.84 high is obvious, we believe being open to either directional count at this juncture and negotiating either count around these recent smaller-degree flexion points at 133.55 and 135.99 is the most practical risk/reward course in the periods immediately ahead.
These issues considered, a cautious bearish policy and exposure remain advised for intermediate-to-longer-term players with a recovery above 135.99 required to defer or threaten this call enough to warrant defensive measures. Short-term traders have the option of playing it either way, still from the bear side until/unless the market recoups 135.99 or from the neutral-to-cautiously-bullish side with a relapse below 133.55 required to negate this tack and warrant its immediate cover ahead of potentially more protracted losses thereafter.