Posted on Jan 26, 2023, 07:41 by Dave Toth
In 06-Jan’s Technical Blog we introduced technical elements that warned of a peak/reversal threat that could be major in scope. As with virtually all such peak/reversal prospects, often times extensive corrective rebuttals to initial counter-trend declines are anticipated within the peak/reversal process. This month’s suspected (B- or 2nd-Wave) correction higher was confirmed with 17-Jan’s bullish divergence in short-term momentum discussed in that day’s Technical Blog. Today’s continuation of this recovery above 18-Jan’s 20.25 initial counter-trend high leaves 20-Jan’s 19.50 low in its wake as the latest smaller-degree corrective low and 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 cautious bullish punts.
We will revisit the longer-term peak/reversal-threat factors below, but suffice it here to say that the market obviously needs to recover above 23-Dec’s 21.18 high to negate this peak/reversal threat and reinstate the secular bull trend. Until and unless such strength is proven, the recovery attempt from 09-Jan’s 18.92 low remains within the bounds of a (B- or 2nd-Wave) correction within the broader peak/reversal process.
The past month’s price action is a perfect example of the application of our three reversal requirements:
- a confirmed bearish divergence in momentum
- proof of trendy, impulsive 5-wave behavior lower, and most importantly,
- proof of 3-wave corrective behavior on the expected retest of the high.
The first two of these requirements have been satisfied and warrant neutralizing longer-term bullish exposure. In 06-Jan’s Technical Blog discussing the broader peak/reversal threat, we warned that because of such an anticipated 2nd-Wave corrective rebuttal, “chasing” new bearish exposure on late-Dec/early-Jan’s initial (A- or 1st-Wave) decline presented poor risk/reward metrics and that waiting for and requiring such a corrective rebound would present a preferred risk/reward selling opportunity for longer-term commercial players.
What the market needs to do NOW to reinforce this broader peak/reversal threat is to satisfy our third reversal requirement of confirming the recovery attempt as a 3-wave and thus corrective structure. Herein lies the critical importance of 20-Jan’s 19.50 smaller-degree corrective low and short-term bull risk parameter. A failure below 19.50 will render the recovery from 09-Jan’s 18.92 low a 3-wave and thus corrective affair, reinforce this major peak/reversal count and expose what we’ll believe at that time could be substantive losses hereafter.
IF, alternatively, late-Dec/early-Jan’s sell-off attempt was just another correction within the still-unfolding secular bull trend, the resuming major bull should not only easily sustain gains above 19.50, but also exhibit trendy, impulsive behavior to the upside and blow away Dec’s 21.18 high in an increasingly obvious manner. Per the peak/reversal count, traders are urged to keep a keen eye on MOMENTUM in the days and perhaps even hours ahead as we would expect a countering bearish divergence in short-term momentum from somewhere between spot and 23-Dec’s 21.18 high.
The long-term peak/reversal-threat factors are shown in the weekly (above) and monthly (below) log scale charts that include:
- 06-Jan’s bearish divergence in WEEKLY momentum below 28-Nov’s 19.05 larger-degree corrective low
- historically extreme bullish sentiment/contrary opinion as indicated by a recent 88% level in our RJHO Bullish Sentiment Index
- a textbook complete 5-wave Elliott sequence from 19-Sep’s 17.19 low to 23-Dec’s 21.18 high (labeled in daily chart above) that arguably completed.
- a massive 5-wave Elliott sequence from Apr’20’s 9.21 low labeled in the weekly chart above.
- the market’s failure thus far to sustain Dec gains above the prior YEAR’S resistance-turned-support around the mid-20-handle-area, and
- Dec’s 21.18 high coming within a smidgeon of the (21.42) 61.8% retrace of 2011 – 2020’s entire secular bear market from 36.08 to 9.21.
This remains a unique and compelling list of technical facts and observations that warns of a peak/reversal threat that could be major in scope. To negate this call and reinstate the secular bull trend, the market simply needs to recoup 23-Dec’s 21.18 high and our key long-term bear risk parameter. A relapse below 20-Janb’s 19.50 smaller-degree corrective low will reinforce this peak/reversal count.
These issues considered, a neutral-to-cautiously-bullish stance remains OK for shorter-term traders with tighter risk profiles with a failure below 19.50 negating this call, warranting its immediate cover and reversal into a new bearish policy. A neutral/sideline policy remains advised for longer-term commercial players with a recovery above 21.18 required to resume a bullish policy. This said, longer-term players are also urged to keep a keen eye on momentum in the days and even hours immediately ahead where a bearish divergence in short-term mo between spot and Dec’s 21.18 high will provide an early opportunity for an initial bearish tranche.