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Posted on Nov 11, 2022, 07:23 by Dave Toth
Yesterday’s impressive impulsive rally above 01-Nov’s 3928 high and our short-term risk parameter discussed in 03-Nov’s Technical Blog nullifies that day’s bearish divergence in short-term momentum and resurrects the suspected bear market rally introduced in 13-Oct’s Technical Blog. This resumed strength identifies Wed’s 3750 low as the latest smaller-degree corrective low this market is now required to sustain gains above to maintain a more immediate bullish count. Per such, this 3750 level serves as our new short-term risk parameter from which shorter-term traders with tighter risk profiles can objectively base non-bearish decisions like short-covers and resumed bullish punts.
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The daily charts above and below show the past couple days’ resumption of the recovery from 13-Oct’s 3502 pivotal low, negation of last week’s bearish divergence in short-term momentum and the POTENTIAL for a bearish divergence in daily momentum. The trend is clearly up on an intermediate-term basis and should not surprise by its continuance or acceleration. A failure below 3750 will CONFIRM another divergence, arrest this uptrend and expose at least a steeper correction of the past month’s rally and possibly a resumption of this year’s major downtrend. If the market has something broader to the upside in mind (i.e., if 13-Oct’s 3502 low completed a 10-month, 27% BULL market correction), then it’s imperative for this market to exhibit trendy, impulsive, sustained behavior higher and ultimately take out 16-Aug’s 4328 major corrective high and key long-term bear risk parameter. In other words, the market needs to BEHAVE LIKE A BULL. A failure below 3750 will be a strike against such a bullish count while commensurately larger-degree weakness below 3502 will negate it, reinstate the secular bear and expose potentially major losses thereafter.
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Stepping back even further, traders and investors are reminded of the technical and trading/investing matter of SCALE. The long-term elements on which our major peak/reversal count that began with mid-Jan’s bearish divergence in weekly momentum remain, with the exception of some measures of market sentiment/contrary opinion like the Bullish Consensus (marketvane.net) and the American Association of Individual Investors Survey having understandably eroded to historically bearish levels. This is supportive of a larger-degree bear market rally or possibly a resumption of the secular bull trend. But as impressive as yesterday’s continuation of the past month’s rebound is, it remains well within the bounds of a correction within even the portion of this year’s downtrend from 16-Aug’s 4328 high, let alone this year’s entire 27% decline from Jan’s 4808 high.
To conclude a resumption of the secular bull market before it recoups 4328 would be presumptive as the past month’s recovery is not of a sufficient SCALE to break the major downtrend. This said, the market HAS identified corrective lows and parameters precisely at 3750 and especially 3502 from which the risk of a bullish tack can be objectively based and managed.
These issues considered, longer-term players remain OK to maintain an interim bullish stance with a failure below 3750 required to threaten this call and warrant paring or neutralizing exposure. Shorter-term traders whipsawed out of bearish exposure following last week’s short-term momentum failure are OK to return to a cautious bullish policy with a failure below 3750 required to negate this call and warrant its cover. In lieu of at least such sub-3750 weakness, further and possibly accelerated gains are anticipated. We will keep a keen eye on momentum in the days immediate ahead as the market approaches the area around the (4012-to-4025-area) 61.8% retrace of Aug-Oct’s decline where a confirmed bearish divergence in momentum will warn of another set of conditions similar to those that capped Jun-Aug’s bear market rally.
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