Posted on Jun 02, 2023, 08:27 by Dave Toth
Overnight’s break below last week’s 24.61 low reaffirms our peak/correction/reversal count introduced in 25-May’s Technical Webcast. This continued weakness obviously reinforces 10-May’s 26.74 orthodox high as one of importance and a short-term bear risk parameter. But as a result of today’s break below last week’s low, the 240-min chart below also shows that this decline leaves Tue’s 25.83 high in its wake as an even smaller-degree corrective high. Despite its small scale, this 25.83 level is absolutely an objective bear risk parameter as this is the tightest level this market now needs to recoup to jeopardize the impulsive integrity of a more immediate bearish count. Per such, shorter-term traders can also use 25.83 as a mini parameter from which to rebase and manage the risk of non-bullish decisions like long-covers and cautious bearish punts.
As is typically the case, effectively navigating correction-vs-reversal environments basically comes down to the technical and trading matter of SCALE. Over the past three weeks, this market has obviously weakened and has identified highs and resistance it must recoup to arrest the slide and raise the odds that this setback is indeed corrective/consolidative ahead of a resumption of the secular bull trend. What is also an obvious takeaway is that the past three weeks’ setback is thus far of waaaay too small a scale to CONCLUDE the end of the secular bull trend shown in the daily (above) and weekly (below) log scale charts.
In recent updates we’ve discussed and speculated on the prospect that the portion of the secular bull trend from early-Jan’s 17.31 low in the Jul contract (18.92 on an active-continuation basis) is only the 3rd-Wave of an eventual 5-wave sequence up from last Sep’s 17.19 low. If correct, this “theoretical” wave count suggests this current setback is just part of a 4th-Wave correction ahead of an eventual 5th-Wave resumption of the secular bull to at least one more round of new highs above 26.74.
There are two problems or risks to this theoretical count:
- Even if we had Divine intervention knowledge that this setback is, in fact, a mere correction within the still-unfolding secular bull, Jan-May’s (suspected 3rd-wave) portion of the bull is so extreme and uninterrupted that the depth of the correction is indeterminable and potentially severe. Indeed, even a Fibonacci MINIMUM 38.2% retrace of Jan-May’s 17.31 – 26.74 rally doesn’t cut across until the 22.65-area.
- RELYING on Elliott “theory” when indeterminable losses and margin calls are at stake is, well, UNreliable and very ill-advised.
In addition to the extent and uninterrupted nature of Jan-May’s uptrend that left little in the of former battlegrounds that now might be able to looked at as support candidates now that that uptrend has been broken, the current 86% reading in our RJO Bullish Sentiment Index reflecting a whopping 270K Managed Money long positions reportable to the CFTC versus only 46K shorts is a massive source of fuel for downside vulnerability if this community if forced to capitulate long exposure.
From a long-term Elliott Wave perspective and per the count labeled in the weekly chart below, commensurately larger-degree weakness below a prospective 1st-Wave high at 21.18 from 23Dec22 is required to “theoretically” negate the impulsive integrity of a 5-wave sequence up from last Sep’s 17.19 low. Even for long-term commercial players, risking bullish exposure to 21.18 is highly impractical and sub-optimal. Per such, we’ve advised even longer-term players to neutralize bullish exposure and acknowledge and accept whipsaw risk back above 26.74 in exchange for much steeper nominal risk below 21.18.
If this setback is just a (4th-wave) correction, then somewhere between spot and 21.18, and perhaps around the (22.65) 38.2% retrace area, this market would be expected to arrest this developing downside threat with a countering bullish divergence in momentum. If/when such a mo failure stems this slide, the market will have provided a specific and more reliable low and support from which a resumed bullish policy and exposure can be objectively based and managed. Until and unless such a bullish divergence arrests this slide, the market’s downside potential remains indeterminable and potentially more extreme.
These issues considered, a bearish policy and exposure remain advised with a recovery above at least 25.83 required to threaten this call and subsequent strength above 26.74 required to negate it, confirm the setback as corrective and reinstate the secular bull that would require a return to a bullish stance. In lieu of such strength, further and possibly sharp losses remain expected.