We discussed Tue’s bearish divergence in short-term momentum in that day’s Technical Blog that left 17-Jan’s 71.37 high in its wake as the latest smaller-degree corrective high the market is required to sustain losses below to maintain a more immediate bearish count. It’s failure to do so will render the sell-off attempt from 13-Jan’s 71.96 high a 3-wave and thus corrective affair reinforcing of the longer-term from last Aug’s low. This 71.37 level remains intact as our short-term risk parameter from which non-bullish decisions like long-covers and cautious bearish punts can be objectively based and managed by shorter-term traders with tighter risk profiles.
The adjustment we’re making today is trailing our long-term bull risk parameter to Wed’s 68.71 low as a result of that day’s relatively sharp rebound from the (68.89) 38.2% retrace of Nov-Jan’s 63.70 – 71.96 rally after what looks to be just a 3-wave and thus corrective setback from 71.96 to Wed’s 68.71 low. Clearly, given the magnitude of Aug-Jan’s major uptrend, such a sub-68.71 break would be of an insufficient scale to conclude the end of this 5-month rally. But given the market’s return to the middle of an 8-YEAR lateral range we’ll discuss below and also that the next pertinent technical threshold is the former resistance-turned-support around the upper-66-handle that we think is a little impractical under the circumstances, we’re opting to pare even long-term risk to a more conservative levels. For only a glance at the daily chart below is needed to see that there’s NO levels of any technical merit between Wed’s 68.71 low and that upper-66-handle-area former resistance-turned-support.
Potentially contributing to a peak/correction count that could be relatively extensive is the prospect that the rally from last Aug’s 57.65 low in the Mar contract is a complete or nearly complete 5-wave Elliott sequence as labeled in the daily log chart above and weekly log chart below. Additionally, our RJO Bullish Sentiment Index has reached relatively frothy levels that cannot be ignored as at least an interim threat to the bull.
Finally, on an even broader monthly log basis below, the market has returned to the middle of its massive and merely lateral range that spans eight years. Such middle-halves of such ranges are often fertile ground for aimless whipsaw risk where the risk/reward merits of initiating or maintaining directional exposure are poor. Under such circumstances, we believe a more conservative approach to risk assumption is warranted, and herein lies the importance of an admittedly tight long-term risk parameter at 68.71.
If the market fails below 68.71 and long-term players cover all bullish exposure, the benefit is that they circumvent the depths unknown of a larger-degree correction or reversal lower. The cost or risk of this benefit is the whipsaw risk of acknowledging a buy-back of these longs above at least 71.37 and certainly above 13-Jan’s 71.96 high that would reinstate the bull. In effect, we believe the market has identified 71.37 and 68.71 as the key directional triggers heading forward. Traders are advised to toggle directional biases and exposure around this flexion points commensurate with their personal risk profiles.