In yesterday morning’s Technical Update we discussed varying and increasing levels or degrees of weakness that reinforce broader peak/correction/reversal-threat environments. The 240-min chart below shows yesterday afternoon’s sharp relapse below Tue’s 4557 low that clearly reaffirms the developing downtrend with the important by-product of this continued weakness being the market’s definition of yesterday’s 4651 high as the latest smaller-degree corrective high this market is now minimally require to recoup to arrest the clear and present downtrend and reject/define a more reliable low and support from which to recalibrate the correction-vs-reversal debate and challenge down from 22-Nov’s increasingly important 4741 high.  In lieu of a recovery above at least 4651, at least the intermediate-term trend remains down ahead of further and possibly accelerated losses straight away.  And per such, our new mini and short-term bear risk parameters from which traders can objectively rebase and manage the risk of non-bullish decisions like long-covers and cautious bearish punts are 4651 and 4741.

From a long-term perspective, the magnitude of the secular bull market is clear in the weekly log chart below, where commensurately larger-degree weakness below 01-Oct’s 4260 larger-degree corrective low and key long-term risk parameter remains required to break the secular bull and expose a major reversal lower.  Again, as recently discussed, we cannot conclude a major reversal from proof of only shorter-term weakness.  And thus far, the past couple weeks’ relapse remains well within the bounds of relatively shorter-term, bull-market-corrective weakness.

This said however, all long-term momentum failures begin with smaller-degree bearish divergence in momentum exactly like that that we have experienced the past two weeks.  And what the market has in store for us between spot and 01-Oct’s pivotal 4260 low is anyone’s guess.  What is not a guess is what the market now has to do defer or mitigate a broader bearish count.  Specifically and objectively, this market needs to recover above yesterday’s 4651 corrective high and mini bear risk parameter.  Until and unless such strength is shown, the market’s immediate downside potential is indeterminable and potentially severe straight away.

Contributing to this downside threat and vulnerability are:

• clearly waning upside momentum on a long-term weekly basis below
• historically frothy levels in the Bullish Consensus (marketvane.net) measure of market sentiment/contrary unseen in nearly FOUR YEARS
• an “outside WEEK” last week (higher high, lower low and lower close than the previous week’s range and close), and
• the prospect that Oct-Nov’s portion of the bull was the completing 5th-wave to a massive 5-wave Elliott sequence from Mar’20’s 2174 low as labeled.

Additionally and updated only yesterday by the American Association of Individual Investors (AAII), Americans’ portfolio positions allocated to equities moved to 71.4%, its highest level since Jan’18 and an ensuing and volatile period that saw the market languish/chop for the entire year before an ultimate decline of 21%.  Alone, such an indicator is relatively useless as it can stay “high” indefinitely as long as the simple uptrend pattern of higher highs and higher lows sustains itself.  BUT COMBINED WITH a bearish divergence in momentum that defines a more reliable high, resistance and a bear risk parameter, such emotional frothiness has to be considered a source of fuel for downside vulnerability until nullified by a resumption of the major uptrend.

Again, the size or “scale” of the past couple weeks’ decline is thus far too small to CONCLUDE a major reversal.  But the ancillary evidence listed above is clearly typical of peak/reversal environments that ultimately prove major in scope.  And as a result of yesterday’s resumed weakness, if non-bullish action like long-covers or pared bullish exposure to more conservative levels hasn’t been taken, longer-term traders and investors are relegating themselves to the only other objective bull risk parameter that remains below the market:  4260.

These issues considered, a neutral/sideline policy remains advised for shorter-term traders while long-term players and investors are advised to pare bullish exposure to more conservative levels with commensurately larger-degree weakness below 4260 the only remaining level below the market from which bull risk can still be objectively based.  In lieu of a sell-off-stemming bullish divergence in short-term momentum needed to reject/define a more reliable low and support, we see NO levels of any technical merit between spot and 4260, so the market’s immediate downside potential is indeterminable and potentially severe.  A recovery above 4651 is, at this juncture, minimally required to arrest the slide and provide new, objective flexion points from which to readdress the correction-vs-reversal debate.  In lieu of such strength, further and possibly accelerated losses are anticipated.