This morning’s failure below 28-Jan’s 1564.6 low and short-term risk parameter discussed in just yesterday’s Technical Blog confirms a bearish divergence in short-term momentum as detailed in the 240-min chart below. This mo failure leaves yesterday’s 1598.5 high in its wake as the END of the (5-wave) uptrend from 14-Jan’s 1536.4 low and new short-term risk parameter from which non-bullish decisions like long-covers and cautious bearish punts can now be objectively based and managed by shorter-term traders with tighter risk profiles.
Against the backdrop of the secular bull trend, today’s bearish divergence in short-term is of too minor a scale to conclude anything more than another interim corrective setback. Indeed, commensurately larger-degree weakness below 14-Jan’s 1536.4 next larger-degree corrective low and/or that day’s 1544.6 corrective low close remains required to, in fact, break the broader uptrend from 12-Nov’s lows. In this regard these larger-degree corrective lows remain as our key long-term risk parameters.
This said however, and especially on a closing basis below, the rally from last Nov’s low looks to be a textbook 5-wave Elliott sequence. With upside momentum waning and amidst historically frothy bullish sentiment levels, it’s not hard to envision today’s short-term weakness morphing into a peak/reversal environment that could be major in scope.
Even more intriguing, moving back to the weekly log scale chart below, the rally from 12Nopv19’s 1446.2 low is arguably the completing 5th-Wave of a massive 5-wave sequence that started all the way back on Aug’18’s 1167.1 low. If, indeed, this market has completed an 18-month uptrend, we suspect we could see multi-month or even multi-quarter losses to the 1450-to-1375-range.
These issues considered, shorter-term traders have been advised to neutralize bullish exposure to circumvent the depths unknown of a correction or reversal lower. Longer-term players are advised to pare bullish exposure to more conservative levels and jettison the position altogether on a failure below 1536.4 that would reinforce a peak/reversal count that could be major in scope. Upon further proof of this required weakness, we will then be on the lookout for 3-wave corrective rebuttals higher to move to a new bearish policy. For now, chasing bearish exposure lower is ill-advised as the risk/reward merits of doing so are poor in our opinion.