In 07-Feb’s Trading Strategies Blog we introduced a pure risk/reward buying opportunity stemming from waning downside momentum on an admittedly short-term scale, the market’s position at the lower-quarter of its massive 4-YEAR lateral range that has repelled all previous sell-off attempts and historically bearish sentiment typical of broader base/reversal-threat environments.  Rolling to the now-prompt May contract, these same factors remain in place following 10-Feb’s short-term momentum divergence above 297.7 that defines 06-Feb’s 292.2 low as one of developing importance and our new short-term risk parameter from which non-bearish decisions like short-covers and cautious bullish punts can be objectively based and managed.

Since that 10-Feb mo failure, the hourly chart below shows a labored, 3-wave corrective retest of the 292.2 low would would seem to reinforce this shorter-term bullish count that warns of a poke above at least 10-Feb’s 299.9 high.

Taking a step back to consider the daily chart below, the POTENTIAL for a bullish divergence is developing nicely and will be considered CONFIRMED to the point of bullish action on this broader scale on a break above 10-Feb’s 299.9 initial counter-trend high.  And especially since this 300-area is an obvious area of former support from early-Dec that, since broken in late-Jan, is a new key resistance candidate, a clear break above this 300-area cannot be ignored as a threat to at least Jan-Feb’s downtrend and, as we’ll discuss below, possibly the major downtrend from May’19’s high.

Per such, we are identifying the 300.0 level as our new long-term risk parameter around which longer-term players are advised to toggle directional biases and exposure.  The market’s upside potential above 300 is indeterminable.  It could just be a slightly larger-degree correction before the broader bear resumes.  By the same token, a 300+ upside break could expose a major reversal to levels well beyond Jan’s 311 high or even Oct’s 322 high.  The one thing we’ll know for sure following a 300+ move is where the market should NOT trade p[er any broader base/reversal count:  below 294.5 initially, and certainly not below 292.2.  So the risk associated with non-bearish decisions like short-covers and/or new bullish punts is specific and objective.

Critical to our developing base/reversal count are:

  • the market’s proximity to the lower-quarter of its massive 4-year lateral range and
  • historically bearish sentiment/contrary opinion levels.

The market presented these conditions in May’19, Aug’17, Jun’17 and Sep’16 and recovered sharply in each instance.  Until and unless this market starts behaving like a bear with sustained, trendy, impulsive price action lower below 283, another extensive reversal higher should hardly come as a surprise.  This presents an outstanding risk/reward buying opportunity for long-term players and even shorter-term traders.

These issues considered, a bullish policy and exposure remain advised for shorter-term traders with a relapse below 292.2 required to negate this cal and warrant its cover.  Longer-term players are advised to pare bearish exposure to more conservative levels and reverse into a bullish policy and exposure on a break above 300.0 with a relapse below 292.2 required to negate this call and warrant its cover.  If the market breaks above 300.0, we believe its upside potential to be indeterminable and potentially extreme.

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