Posted on Mar 01, 2023, 07:52 by Dave Toth

The market’s failure overnight below 21-Feb’s 183.30 minor corrective low and our short-term risk parameter discussed in 21-Feb’s Technical Blog confirms a bearish divergence in short-term momentum that defines 22-Feb’s 194.15 high as one of developing importance and possibly the end of a 3- (corrective) or 5-wave Elliott sequence up from 11-Jan’s 142.05 low.  In this regard, this 194.15 high is considered our new short-term risk parameter from which traders can objectively base non-bullish decisions like long-covers and cautious bearish punts.

On a broader scale, commensurately larger-degree weakness below 06-Feb’s 171.25 larger-degree corrective low detailed in the daily log chart above remains required to confirm a bearish divergence in momentum on a scale sufficient to conclude the end of the broader recovery from 11-Jan’s 142.05 low.  Per such, this level remains intact as our key long-term bull risk parameter pertinent to longer-term commercial players.  This said and against the backdrop of Feb’22 – Jan’23’s major downtrend shown in the weekly log chart below, Jan-Feb’s impressive recovery still falls well within the bounds of a corrective/consolidative event within a still-developing major reversal lower.  The odds of a resumption of the past year’s broader bear trend will improve if this market follows up today’s bearish divergence in short-term mo with a larger-degree failure below 171.25.  In effect, this market has identified 171.25 and 194.15 as the key directional flexion points heading forward, and traders are advised to toggle directional biases and exposure around these levels commensurate with their personal risk profiles.

Finally and on an even longer-term monthly log active-continuation basis, the chart below shows the market still deep, deep within the middle-half bowels of its massive but lateral historical range where we’ve discussed the greater odd of aimless whipsaw risk since 18-Jan’s bullish divergence in short-term momentum threatened the prior 11-month meltdown.  The odds of such aimless, challenging chop remain high, warranting a more conservative approach to directional risk assumption.  And herein lies the importance of identifying tighter but objective levels around which to manage the risk of directional exposure like 194.15 and 171.25.

These issues considered, shorter-term traders have been advised to move to a neutral/sideline position and are further OK to consider cautious bearish punts with a recovery above 194.15 required to negate this call and warrant its cover.  Longer-term commercial players are advised to pare bullish exposure to more conservative levels and to jettison remaining exposure on a failure below 171.25 that would confirm a larger-degree correction lower and possibly a resumption of the past year’s major reversal.

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