The market’s recovery overnight above 09-Sep’s 12.17 smaller-degree corrective high and short-term risk parameter discussed in yesterday’s Technical Webcast confirms a bullish divergence in short-term momentum that defines Mon’s 11.73 low as the end of what arguably is a 5-wave Elliott sequence down from 14-Aug’s 13.28 high.  Per such, this 11.73 low serves as our new short-term risk parameter from which non-bearish decisions like short-covers and cautious bullish punts can be objectively based and managed.

The Fibonacci fact that Mon’s 11.73 low is also the exact 38.2% retrace of Apr-Aug’s 9.21 – 13.28 rally reinforces the prospect for an interim bottom and recovery.  From a longer-term perspective however, a broader peak/reversal threat remains intact as long as 14-Aug’s 13.28 high and key risk parameter remains intact.   This peak/reversal count is predicated on the unique and compelling combination of:

  • 03-Sep’s bearish divergence in daily momentum discussed in that day’s Technical Blog
  • an arguably textbook 5-wave Elliott sequence from 28-Apr’s 9.21 low to 14-Aug’s 13.28 high as labeled in the daily chart above
  • historically frothy levels in our RJO Bullish Sentiment Index (below) not seen in 3-1/2-YEARS
  • the market’s rejection thus far of the (13.34) 61.8% retrace of Feb-Apr’s 15.90 – 9.21 collapse.

Given the backdrop of these broader peak/reversal-threat factors, traders are advised to approach the expected recovery cautiously as a prospective correction that ultimately would be expected to give way to mid-Aug-to-mid-Sep’s initial counter-trend break and eventual levels below 11.73.  In the 240-min chart (top), we have listed the (12.50) 50% and (12.69) 61.8% retraces of Aug-Sep’s 13.28 – 11.73 decline as “areas of interest” around which to be watchful for a recovery-stemming bearish divergence in momentum that would present a favorable risk/reward opportunity from the sell side.  Until and unless a bearish divergence in mo stems this recovery OR if the market fails below 11.73, we anticipate lateral-to-higher levels in the period ahead.

These issues considered, traders have been advised to move to a neutral/sideline position and are even OK to take a cautious punt from the buy side from 12.00 OB with a failure below 11.73 required to negate this call, reinstate the bear and expose potentially sharp losses thereafter.  In lieu of such sub-11.73 weakness, we anticipate higher prices- possibly to the 12.50-to-12.69-area- in the week or two ahead.

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