The market’s sharp failure yesterday afternoon below our short-term risk parameter at 4071 discussed in Tue’s Trading Strategies Blog confirms the bearish divergence in momentum that breaks the recovery attempt from 20-May’s 3807 low and exposes at least an intermediate-term correction of this recent pop and very possibly a resumption of the major bear trend. The 240-min chart below shows that this resumed weakness leaves smaller-degree corrective highs in its wake at 4144 and especially 4202 that this market is now required to recover above to mitigate a broader bearish count and resuscitate a larger-degree corrective or reversal count higher. Per such, these levels serve as our new mini and short-term risk parameters from which traders can objectively rebase and manage the risk of non-bullish decisions like long-covers and resumed bearish punts.
The daily log chart above shows yesterday’s confirmed bearish divergence in momentum below 49071 that breaks the recent recovery attempt. Combined with the Fibonacci fact that this recovery came within a mere three points of the (4199) 50% retrace of Mar-May’s 4631 – 3807 decline against the backdrop of a still-arguable major bear market, it’s not hard to envision this latest recovery attempt as another correction within the secular bear ahead of its resumption to new and potentially fantastic new lows below 20-May’s obviously pivotal 3807 low.
IF, alternatively, the recovery from 3807 to 4202 is the A- or 1st-Wave start of a broader correction or reversal HIGHER, then by definition, this market needs to arrest this current relapse with a counting bullish divergence in momentum from a level north of 20-May’s 3807 low, perhaps around the (3958) 61.9% retrace of the 3807 – 4202 recovery. The 240-min chart (top) shows today’s low thus far to be exactly 3958, so this will be a key factor to monitor in the hours/days directly ahead. Until and unless such a bullish divergence in momentum stems this relapse, sharp, sustained, trendy, impulsive losses straight away should hardly surprise in the resumption of the secular bear trend to new lows below 20-May’s 3807 low.
These issues considered and as recommended in Tue’s Trading Strategies Blog, a bearish policy and exposure from yesterday’s immediate failure below 4071 remains advised with a recovery above at least 4144 required to warrant covering this position and moving to a neutral-to-cautiously-bullish stance. In lieu of such strength, further and possibly steep losses straight away are anticipated, including a resumption of the secular bear trend to new lows below 3807.