Posted on Jan 11, 2024, 07:12 by Dave Toth

We discussed a peak/correction/reversal-Threat count in 02-Jan’s Technical Blog following that day’s bearish divergence in short-term momentum below 18-Dec’s 136.59 minor corrective low.  This mo failure identified 27-Dec’s 138.84 high as one of developing importance and one that remains intact as a short-term bear risk parameter this market must recoup to confirm the past couple weeks’ setback as the 3-wave and thus corrective event we suspect it is within the still-arguable and broader base/reversal count from 04-Oct’s 126.62 low.  Yesterday’s break below Fri’s 135.06 low reaffirms this peak/correction/reversal-threat count with the important by-product being the market’s definition of Mon’s 136.16 high as the latest smaller-degree corrective high and new mini parameter the market would be expected to sustain trendy, impulsive losses below IF a broader (3rd-wave) reversal count is at hand.

A recovery above 136.16 won’t allow us to CONCLUDE a 3-wave correction and (5th-Wave) resumption of the 3-month uptrend, but it would tilt at least short-term directional scales back to the bull side and reject/define a more reliable low and support from which the risk of a resumed bullish tack could then be objectively based and managed.  This is a very short-term but important development heading into today and tomorrow’s CPI and PPI inflation reports.  Per such, we’re identifying 136.16 as a very short-term but key flexion point around which directional biases and exposure can be objectively toggled.

On a broader scale, only a glance at the daily chart above is needed to see that the extent and impulsiveness of the rally from 23-Oct’s 127.18 low to 27-Dec’s 138.84 high as “3rd-wave” written all over it.  And thus far, the past couple weeks’ setback that has yet to reach even a Fibonacci minimum 38.2% retrace of this suspected 3rd-Wave rally is well within the bounds and characteristic of a (4th-Wave) correction ahead of an eventual (5th-Wave) resumption of what we suspect is only the INITIAL (A- or 1st-Wave) of a major base/correction/reversal process from Oct’s 126.62 low that could span months or quarters ahead.

However….to conclude the end or lower boundary to such a suspected 4th-Wave correction, the market must break the past couple weeks’ clear and present at least intermediate-term downtrend.  And we will navigate such a break precisely above Mon’s 136.16 admittedly smaller-degree corrective high.  Thereafter, the upside (5th-Wave) proof will be in the pudding with the requirement of the bull’s break above 27-Dec’s 138.84 high.  Prior to such proof, there would be no way to know of further and more protracted but LATERAL (4th-Wave) consolidation between whatever low such a 136.16+ recovery defines and that 138.84 high.

These issues considered, a neutral-to-cautiously-bearish policy remains advised with a recovery above 136.16 required to flip the directional script back to the bull side and the prospective resumption of the 3-month base/reversal count.  Moving to a cautious bullish stance on the immediate break above 136.16 would be advised with a relapse below whatever low is left in the wake of that momentum divergence then required to negate that bullish punt and warrant its cover.

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