The hourly chart below shows that the market has recovered enough over the past week-and-a-half to define 16-Sep’s 61.25 low as one of developing, if short-term importance and a new risk parameter from which a still-advised bullish policy and exposure can and should be objectively rebased and managed. This chart also shows that this recovery has thus far stalled around the (64.88) 61.8% retrace of mid-Sep’s 67.10 – 61.25 decline. This Fibonacci fact means little in this case…until and unless the market fails below 61.25, which could then expose a more protracted correction or reversal lower.
Stepping back a bit, we’ve stated in recent updates that the extent and accelerated nature of late-Aug/early-Sep’s portion of the bull infers an “extended 3rd-Wave” that warns of 4th-wave slowdown setbacks and subsequent 5th-wave resumptions of the rally before the bull runs its course and becomes more vulnerable to a more protracted setback. Despite this prospect that would remain even if the market confirms a bearish divergence in momentum below 61.25, traders are advised to neutralize bullish exposure on a sub-61.25 failure due to its position back in the middle of the middle-half bowels of its historical range where the risk/reward merits of initiating or maintaining directional exposure are questionable.
Stepping back even further, the monthly (above) and quarterly (below) log scale charts show the market back to the smack-dab middle of its past 4-year range and within the median range that has constrained it for the past 40+ years. Such range-center levels and conditions are rife with aimless whipsaw risk where we believe a more conservative approach to risk assumption is warranted. When the market was traipsing around the lower-quarter of its 4-year range in Jul and early-Aug, our base/reversal count introduced in 10-Aug’s Technical Webcast and bullish decisions were a relative and favorable risk/reward no-brainer. “Up here”, in the middle of this market’s historical range, direction is much more of a coin flip.
These issues considered, a bullish policy and exposure remain advised, with a failure below 61.25 threatening this call enough to warrant moving to a neutral/sideline position to circumvent the depths unknown of a more protracted correction or reversal lower. In lieu of such sub-61.25 weakness, further and possibly accelerated gains to another round of new highs above 67.10 should not surprise.