Posted on Mar 14, 2023, 07:27 by Dave Toth

In yesterday’s Technical Blog we introduced the unique and compelling list of elements that warn that the past week’s sharp rally may be only the initial salvo in a base/reversal process that may be major in scope.  We also discussed that because of the extent and obviousness of this rally so early against the massive 31-MONTH secular bear trend, we anticipate an extensive corrective rebuttal back down.  And such a correction may have already began.

The hourly chart above shows overnight’s failure below a very, very minor corrective low at 96.075.  This confirms a bearish divergence in short-term momentum that defines overnight’s 96.515 high as one of developing importance and arguably the end of a 5-wave sequence up from 08-Mar’s 94.775 low.  A recovery above 96.515 is thus required to negate this call for a corrective relapse and resurrect the initial rally in a broader base/reversal count.  Per such, we’re identifying 96.515 as our new short-term risk parameter from which traders can objectively base non-bullish decisions like long-covers and cautious bearish punts.

On a broader scale, the daily chart below shows the past week’s impulsive, 5-wave rally above 19-Jan’s larger-degree corrective high that confirms a bullish divergence in WEEKLY and MONTHLY momentum that, in fact, breaks the secular bear market.  The key by-product of this performance is the market’s definition of 08-Mar’s 94.775 low as its single most important technical level and condition.  A relapse below 94.775 is now required to negate any base/reversal count and reinstate the secular bear trend.  Until and unless such sub-94.775 weakness is proven, setback attempts, even extensive ones, are advised to first be approached as corrective buying opportunities by long-term institutional traders AFTER a confirmed bullish divergence in momentum arrests such a relapse.

On an even longer-term basis, the weekly close-only chart above and monthly chart below show the unique combination of:

• a confirmed bullish divergence in long-term momentum amidst
• historically bearish sentiment levels
• an arguably complete and massive 5-wave Elliott sequence down from Auyg’20’s 99.895 all-time high and
• an “outside MONTH” up (higher high, lower low and probably higher close than Feb’s range and close).

Nonetheless, the market needs to satisfy the key third of our three key reversal requirements of proof of 3-wave corrective behavior on a subsequent rebuttal to the initial counter-trend rally.  This is what we believe lies in the days and weeks ahead following overnight’s bearish divergence in short-term momentum.

These issues considered, we anticipate a potentially extensive correction of the past week’s rally that could easily reach the 95.44-area (61.8% ret of 94.775 – 96.515 rally) over the days and weeks ahead.  A recovery above 96.515 is required to negate this call and resurrect the broader base/reversal count.