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S-T Sterling Failure Could Re-expose L-T Bear

Posted 09/25/2019 7:33AM CT | RJO Market Insights

We’ve been discussing this market’s correction-vs-reversal debate for the past few weeks now and updated most recently, in 20-Sep’s Technical Blog, its need to SUSTAIN gains above admittedly short-term but important corrective lows and risk parameters in order to maintain a more immediate bullish count.  Mon’s micro mo failure below 19-Sep’s 1.2478 minor corrective low was a start.  This morning’s failure below 17-Sep’s 1.2437 corrective low and our short-term risk parameter CONFIRMS a bearish divergence in short-term momentum that defines 20-Sep’s 1.2624 high as one of developing importance and very possibly the END of a 3-wave and thus corrective recovery attempt from 03-Sep’s 1.2008 low that now warns of a resumption of the secular bear trend that preceded it.  In this regard, Fri’s 1.2624 high becomes our new short-term risk parameter from which a resumed bearish policy can be objectively based and managed.

The daily chart below shows the bearish divergence in momentum that rejects/defines Fri’s 1.2624 high as the end of this month’s recovery.  It’s premature to conclude at this juncture whether this month’s rally is indeed a broader bear market correction or just the start of a broader base/correction/reversal environment.  But as a direct result of this morning’s momentum failure, the market has identified a precise level at 1.2624 from which to objectively base at least an interim bearish position for a (B- or 2nd-Wave) corrective retest of early-Sep’s low OR a resumption of the secular bear to new lows below 1.2000.

ON a broader weekly log scale basis above, historically bearish sentiment levels and the market’s gross failure thus far to sustain losses down around Jan’17’s obviously key 1.2000-area lows remain as reasons to beware a broader base/reversal-threat.  However, we’ve discussed the 1.25-handle-“area” as a key former support-turned-resistance condition.  As a result of this morning’s bearish divergence in momentum, we can update that resistance to 1.2624 specifically.

Compellingly, on a weekly log close-only basis below, last Fri’s 1.2508 close not only remained below Dec’18’s former 1.2576-area support-turned-resistance, it was the EXACT 38.2% retrace of Mar-Aug’s 1.3295 – 1.2044 decline.  Combined with this morning’s momentum failure, we believe this market is poised for at least a substantial relapse and presents a favorable risk/reward selling opportunity.

These issues considered, traders are advised to re-establish a bearish policy and exposure at-the-market (1.2420) with a recovery above 1.2624 required to negate this call and warrant its cover.  We anticipate at east a substantial corrective rebuttal to early-Sep’s 1.2008 – 1.2624 rally if not a resumption of the secular bear to new lows below 1.2000.

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