This morning’s failure below 13-Dec’s 2.253 minor corrective low confirms a bearish divergence in short-term momentum that stems the recent recovery attempt from 09-Dec’s 2.158 low at Mon’s 2.377 high.  Against the backdrop of Nov-Dec’s broader downtrend shown in the daily log close-only chart below, this 2.377 high is considered the end or upper boundary of a (suspected 4th-Wave) correction ahead of a resumption of the broader bear, and per such our new short-term risk parameter from which a bearish policy and exposure can be objectively rebased and managed by shorter-term traders with tighter risk profiles.

On a broader scale, we believe commensurately larger-degree strength above 03-Dec’s 2.441 corrective high close is required to confirm a bullish divergence in momentum on a scale sufficient to conclude the END of a 5-wave Elliott sequence down from 05-Nov’s 2.980 high and resurrect a base/reversal-threat environment that we believe could be major in scope.  This 2.441 level is thus considered our long-term risk parameter to a still-advised bearish policy for long-term players.

Threats to the long-term bear remain in the form of:

  • historically bearish sentiment that, in the case of our RJO Bullish Sentiment Index, hasn’t been seen in 1 YEARS and
  • the market’s proximity to the lower-quarter of the past 10-YEAR lateral range.

But these factors do not matter until and unless the market stems the clear and present downtrend on a scale sufficient to break Nov-Dec’s downtrend.  Herein lies the importance of 03-Dec’s 2.441 larger-degree corrective high and key risk parameter.  Until and unless such strength is shown, there’s no way to know how low “low” is.  This said, traders remain advised to be suspicious of bearish exposure in the mere $0.60-cent range between 2.20 and 1.60 that has repelled EVERY sell-off attempt over the past 10 years under sentiment/contrary opinion indicators that were not even as bearish as current conditions are.

These technical facts question the risk/reward merits of maintains a bearish policy “way down here”.  And this is precisely the key reason behind identifying specific bear risk parameters like 2.441.  If we’re supposed to remain bearish down here and lovin’ it because this market is going to sub-2.00 or 1.60 or 1.00 or zero, then its paramount that the bear continue to BEHAVE LIKE ONE with trendy, impulsive behavior lower.  This means NOT recovery above corrective highs like 2.441.  The moment the market does recoup a level like 2.441 (as this level could adjust lower over time) is the moment that a base/reversal and favorable risk/reward BUYING condition like Mar’16 and Apr’12 and Sep’09 is exposed.

These issues considered, a bearish policy remains advised with a recovery above 2.377 required for shorter-term traders to step aside and for longer-term players to pare exposure to more conservative levels.  In lieu of such strength, further lateral-to-lower prices are expected in the days and perhaps weeks ahead.

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