The market’s failure this morning below 08-Jul’s 4279 corrective low confirms a bearish divergence in daily momentum. This mo failure defines last week’s 4385 high as one of developing importance and our new mini risk parameter this market is now required to recoup to confirm this setback as yet another minor correction within the secular bull trend.
Once again, we’re in a situation where the market has failed on a shorter-term scale that is insufficient to conclude anything more at this juncture than another interim correction within the secular bull market. As always, concluding a larger-degree top from proof of just smaller-degree weakness is outside the bounds of technical discipline. It’s akin to buying a $1.00 raffle ticket and concluding you’re gonna win $500. This said, every larger-degree momentum failure starts with exactly such a smaller-degree failure like today’s; so it’s now incumbent on the bull to sustain gains above 21-Jun’s 4127 next larger-degree corrective low and risk parameter it certainly should be expected to stay above to maintain the longer-term bull trend pertinent to longer-term traders and investors.
Per such, even longer-term players are urged to heed today’s smaller-degree weakness as a warning to get your defensive ducks in a row and a game plan in place to manage the risk of still-advised bullish exposure in the event of proof of larger-degree weakness below 4127. This is especially with other key and correlated commodities like the energy complex, copper and silver looking vulnerable by recent flagging behavior as well.
IF this is just another slightly larger-degree correction within the still-dominant secular bull trend, former 4255-to-4235-area resistance from mid-May through mid-Jun would be expected to hold as new near-term support. A clear break below this area would be the next unnerving sign of pending weakness and vulnerability on a larger scale.
From a much longer-term perspective, it’s not hard to see the rally from Mar’20’s 2174 low as the completing 5th-Wave to a massive Elliott sequence that dates from 2009’s 666 low, but it’ll take months or even quarters of weakness to confirm such a wave count. For now, all that’s important is acknowledging this as a possibility that, if correct, would likely mean years of correction or bear market that could easily retrace to the 2100-to-1700-area. What IS noteworthy are some measures of market sentiment that have reached historically frothy levels typical of major peak/reversal environments like:
- the Bullish Consensus (marketvane.net) that, at 66%, is the highest in 3-1/2-YEARS and
- investor portfolio allocations to equities and equity-to-cash ratios that haven’t been this frothy since early-2018 that began a year-long period of corrective volatility that ended up with a 21% decline.
Again, can we conclude a period of such a larger-degree weakness and vulnerability from just the past week’s smaller-degree of weakness? Absolutely not. But we can conclude 1) last week’s 4385 high as a mini risk parameter the market now needs to recoup to mitigate such a bear threat and 2) and the need to and awareness of putting together a defensive game plan if this smaller-degree weakness morphs into larger-degree weakness and a much bigger peak/reversal threat if the market fails below the approximate 4230-area initially and then below 21-Jun’s 4127 next larger-degree corrective low.
These issues considered, shorter-term traders with tighter risk profiles are advised to move to a neutral/sideline to circumvent the depths unknown of a suspected corrective setback with a recovery above 4385 required to negate this call and reinstate the secular bull. A bullish policy and exposure remain advised for longer-term players and investors with a failure below 4127 required to pare or neutralize exposure ahead of a more protracted correction or reversal lower. Longer-term players also have the option of paring bullish exposure at current levels and acknowledging and accepting whipsaw risk (back above 4385) for deeper nominal risk below 4127.