In yesterday’s Technical Blog we identified Mon’s 3979 low as a very tight but objective risk parameter the market needed to sustain gains above to maintain a more immediate bullish count. The 240-min chart below shows the market’s gross failure to do so today, confirming a countering bearish divergence in momentum that defines yesterday’s 4095 high as one of developing importance and possibly the end or upper boundary of another correction within the major bear trend we suspect it is. Per such, this 4095 level becomes a mini risk parameter from which non-bullish decisions like long-covers and resumed bearish exposure can be objectively rebased and managed.
This said, until 12-May’s 3855 low is broken to CONFIRM the recent bounce as a correction and reinstate the secular bear, we have to respect this low and support as a short-term risk parameter from which non-bearish decisions like short-covers and bullish punts can be objectively based and managed. In effect, we believe the market has identified 4095 and 3855 as the short-term but key directional flexion points heading forward.
On a broader basis, the daily log scale chart of the E-Mini S&P shows the market still BELOW an area of former key support from the 4130-to-4210-area that, since demolished earlier this month, serves as a new key resistance area heading forward. A recovery above at least this resistance, and preferably above 28-Apr’s 4304 larger-degree corrective high and key long-term risk parameter is required to threaten the major bear. Given the backdrop of even May-May’s portion of the bear, let alone this year’s entire near-20% drop, the past week’s recovery attempt falls well within the bounds of another mere corrective hiccup ahead of further and possibly protracted losses.
Interestingly per this broader bearish scenario, the daily close-only chart of the Dow below shows today’s relapse from a rather acute 32600-area that is both an area of former support-turned-resistance from 08-Mar AND a Fibonacci minimum 38.2% retrace of this month’s portion of the bear from 34061 to 12-May’s 31730 low. On this basis, the market is on the verge of resuming the secular bear trend ahead of still-indeterminable and potentially major losses. The importance of today’s resumed weakness is the market’s definition of yesterday’s 32655 high and 04-May’s 34061 high as the smaller- and larger-degree corrective highs and risk parameters it is required to recover above to defer or mitigate a broader bearish count. Until and unless such strength is proven, further and possibly major losses should not surprise.
Finally and from an even longer-term weekly perspective below, the S&P has yet to show any evidence to squelch even the portion of the bear from 29-Mar’s 4631 high, let alone this year’s major peak/correction/reversal environment. We don’t need to rehash the long-term peak/reversal elements we introduced in Jan that warned of what thus far has been a near-20% drawdown. What’s still important at this stage is the acknowledgement of indeterminable and potentially extreme losses. To suggest that this decline won’t or can’t drop 30%, 40% or more from 04-Jan’s 4808 high would be subjective, emotional and/or baseless. In effect, bulls have NO objective risk level or condition below which they can jettison bullish exposure. By contrast, we have identified specific highs and risk parameters from which to objectively manage the risk of an advised bearish policy. And until these highs are breached, there is no way to know how low “low” is.
These issues considered, a bearish policy and exposure remain advised for longer-term institutional players and investors with a recovery above at least yesterday’s 4095 high required to pare exposure to more conservative levels and preferably above 4304 to neutralize any/all remaining exposure. Shorter-term traders whipsawed out of bearish exposure following yesterday’s recovery above 4066 are advised to maintain a neutral/sideline position for the time being with a failure below 3855 re-exposing the bear and warranting a resumed bearish policy. A recovery above 4095 is required to resuscitate a larger-degree correction higher.