The 240-min chart below shows that the market’s recovery this morning above last Thur’s 3334 smaller-degree corrective high confirms a bullish divergence in short-term momentum.  This mo failure defines Fri’s 3225 low as one of developing importance and possibly the end of a 5-wave Elliott sequence down from 12-Oct’s 3541 high.  Or not.  Indeed, at this juncture it’s indeterminable whether Fri’s 3225 low completed five waves down from 3541 or only three.  What we know for facts however is that 1) Oct’s downtrend has been compromised and 2) this mo failure stems from the extreme lower recesses of the 3587 – 3198 range that has encapsulated this market for two months and that is arguably a major BULL MARKET correction/consolidation.  Per such, Fri’s 3225 low serves as an objective short-term risk parameter from which shorter-term traders with tighter risk profiles can objectively base non-bearish decisions like short-covers and cautious bullish punts.

Today’s proof of short-term strength is very important and compelling in that it came sooooo close to 24-Sep’s crucial 3198 lower range boundary and key longer-term risk parameter, the break below which will, in fact, break Mar-Sep’s uptrend and expose a peak/reversal threat of indeterminable scope.  For weeks we’ve discussed the important combination of:

  • 04-Sep’s bearish divergence in momentum discussed in that day’s Technical Blog that
  • defined 02-Sep’s 3587 high as the end of a 5-wave Elliott sequence from 23-Mar’s 2174 low
  • the market’s failure to sustain late-Sep gains above Feb’s former all-time high of 3398 amidst
  • a return to relatively frothy sentiment level not seen since those that accompanied Feb’s major peak and meltdown.

THUS FAR, and as long as the market unfolds laterally, succeeding in sustaining levels above 3198, then these past couple months’ mere lateral chop is easily seen as a very CONSTRUCTIVE bull market consolidation that warns of an eventual resumption of Mar-Sep’s uptrend that preceded it.  A failure below 3198 negates this count and exposes a broader correction or reversal lower of indeterminable and potentially major scope.

Today’s admittedly short-term strength from levels just above that pivotal 3198 threshold is encouraging, but now the bull’s gotta PERFORM.  A relapse below our short-term risk parameter at 3225 will nullify today’s bullish divergence in mo and leave 24-Sep’s 3198 low and key risk parameter as the last bastion of support the market would then need to hold to avoid tipping over into a broader bearish scenario.

These issues considered, shorter-term traders are advised to return to a cautious bullish policy and first approach setback attempts to 3275 OB as corrective buying opportunities with a failure below 3225 negating this specific call and warranting its immediate cover.  Long-term players and investors remain advised to maintain a bullish policy with a failure below 3225 required to pare exposure to more conservative levels and a failure below 3198 required to neutralize exposure altogether to circumvent the depths unknown of a correction or reversal lower that could be major in scope.  In lieu of weakness below at least 3225, further recovery and possibly a resumption of the secular bull trend are expected.

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