Posted on Nov 21, 2023, 07:44 by Dave Toth
Yesterday’s continuation of the past three weeks’ very impressive recovery- this time above last week’s 4541 high- leaves last Thur’s 4501 low in its wake as the latest smaller-degree corrective low this market now needs to sustain gains above to maintain a more immediate bullish count. Its failure to do so will confirm a bearish divergence in short-term momentum and break at least the portion of this uptrend from 10-Nov’s 4354 corrective low detailed in the 240-min chart below. But given this market’s engagement of not only the upper-quarter of the past four months’ range, but also the range that has constrained it since Jan’22’s 4808 all-time high, even an admittedly smaller-degree momentum failure would question the risk/reward metrics of a continued bullish count enough to warrant paring or neutralizing bullish exposure. Per such, we’re defining 4501 as our new short-term but key parameter from which the risk of a continued bullish policy and exposure can be objectively rebased and managed.
Only a glance at the daily log (above) and weekly (below) charts is needed to see the market’s precarious position at the upper-recesses of the 4-month and 22-month ranges and the major resistance candidacy that it poses. No, we cannot conclude another Sep-Oct swoon from an admittedly short-term momentum failure below 4501. But given the extent and uninterrupted nature of the past three weeks’ rally that left little in the way of any consolidative battlegrounds that we can look to as prospective support and another bull risk parameter, the extent of any correction or reversal below 4501 would be indeterminable and potentially severe.
Contributing to what could be downside vulnerability if/when the market does confirm a momentum failure “up here” is the unsurprising jump in market sentiment/contrary opinion resulting from the past three weeks’ impressive rally. Such a swing to a more bullish skew by the masses means little as long as the uptrend keeps on keepin’ on. But when that trend is broken and bulls start giving back gains, the rejected/defined high and resistance left in the wake of that mo failure presents a specific and objective level and condition from which to manage non-bullish decisions like long-covers and bearish punts. We believe that key flexion point is 4501. Until and unless this rally is threatened by such a sub-4501 mo failure, there’s no way to know that this tangent won’t continue, break 27-Jul’s obviously key 4635 high and negate our major peak/reversal count.
These issues considered, an interim bullish policy and exposure remain advised with a failure below 4501 required to move to a neutral-to-cautiously-bearish stance.