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S&P Correction-vs-Reversal Debate Continues

Posted 09/03/2019 7:55AM CT | RJO Market Insights

Acknowledgement of and flexibility to a move either way remains urged as the correction-vs-reversal debate took another intra-range turn higher on Fri.  In last Mon’s Technical Blog following that day’s failure below 15-Aug’s 2817 low, we identified 22-Aug’s 2940 high as one of developing importance and the level the market needed to recoup to mitigate a more immediate bearish count.  The 240-min chart below shows the market’s recovery above 2940 on Fri, leaving smaller- and larger-degree corrective lows in its wake at 2852 and 2810, respectively, that it now is required to sustain gains above to maintain a more immediate bullish count.  Per such these levels may be considered our new short- and longer-term risk parameters from which non-bearish decisions like short-covers and cautious bullish punts can be objectively based and managed.  Such well-defined risk parameters may be of little solace however to traders who have suffered from aimless whipsaw risk the past few weeks as the debate rages on as to whether the sell-off attempt from 26-Jul’s 3030 all-time high is merely lateral consolidation before the secular bull resumes OR the early stages of a more protracted reversal lower.

Despite last Thur/Fri’s rebound, the recovery attempt from 06-Aug’s 2776 intra-day low or 05-Aug’s 2825 low close looks about as labored and corrective as it gets with the market still below an area between roughly 2933 (61.8%r of 3030 – 2776 decline) and 2966 (upper-quarter of 3030 – 2776-range) that we’ve labeled the “rubber meets the road range”.  For IF Jul-Aug’s sell-off attempt is just a mere correction within the secular bull, then somewhere “up here” the bull needs to BEHAVE LIKE ONE and display trendy, impulsive price action UP to eventual new highs above 3030.  It’s inability to do so followed by resurrected weakness below levels like 2852 and certainly 2810 would reinforce a count calling for at least a larger-degree and steeper correction lower and possibly a more protracted reversal lower.

Indeed, on the heels of late-Jul/early-Aug’s sharp, impulsive decline, the past 3-1/2-weeks’ lateral chop thus far looks like a textbook (B-Wave) triangle consolidation that warns of a resumption of that late-Jul/early-Aug decline that preceded it.  From this close-only perspective below, a close above 21-Aug’s 2932 corrective high close remains arguably required to negate this specific call and reaffirm at least the intermediate-term uptrend.

While price action and momentum look very questionable to us, the anomaly here is that market sentiment/contrary opinion indicators are wafting around historically low, bearish levels typical of the ENDS of major corrections, not the middle of a relatively minor range where prices remain spittin’ distance from all-time highs.  Said another way, there are  too many people too bearish to early in a prospective reversal.  Market’s typically peak/reverse when sentiment/contrary opinion is emotionally frothy, NOT at such current historically low levels.

This sentiment condition should be good, perhaps even great news to bulls.  But again, somewhere along the line the bull needs to BEHAVE LIKE ONE “UP HERE” and exhibit trendy, impulsive price action higher.  A failure below last Wed’s 2852 smaller-degree corrective low and short-term risk parameter will threaten a bullish count while subsequent weakness below 26-Aug’s 2810 corrective low will negate it and reinforce a bearish count calling for a steeper correction or reversal lower.

In sum, the market remains deep within the middle-half bowels of the past month’s 3030 – 2776-range that could resolve itself either way and continue to exhibit aimless whipsaw risk typical of such range-center environs.  Because of Thur/Fri’s rebound, the intermediate-term trend is up with a failure below 2851 required to break this intra-range uptrend and tilt the larger-degree directional scales lower.  In lieu of such sub-2851 weakness and given historically bearish sentiment conditions, further gains should not surprise.  Nonetheless, the market’s position still within a lateral range where the odds of aimless whipsaw risk are higher warrants a more conservative approach to risk assumption if one’s going to participate at all.  Per such, a neutral-to-cautiously-bullish stance is advised from current 2910-area prices with a failure below 2851 threatening this call enough to warrant switching around to a neutral-to-cautiously-bearish policy.

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