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Treat or Treat, S-T Mo Failure Stems S&P Collapse

Posted 10/31/2018 8:20AM CT | RJO Market Insights

In yesterday’s Technical Blog we identified Mon’s 2707 minor corrective high as the level the market needed to sustain losses below to maintain a more immediate bearish count.  Its failure to do so this morning confirms a bullish divergence in short-term momentum as detailed in the 240-min chart below.  This mo failure only allows us to conclude the end of the downtrend from 17-Oct’s 2824 high, NOT the entire month’s meltdown from 21-Sep’s 2947 high.  But for additional reasons we’ll discuss below, such a more protracted corrective rebuttal of this decline or even possibly a resumption of the secular bull trend should not come as a surprise.

The key takeaway here is that as a direct result of this confirmed bullish divergence in momentum, the market has identified a specific low and support at 2603 from which any non-bearish decisions like short-covers and cautious bullish punts can now be objectively based and managed.  And traders are advised to do so.

We anticipate some initial resistance from the 2730-area identified by former support from this area in early-Oct and also because of the (2729) 38.2% retrace of Sep-Oct’s 2947 – 2603 decline.  But against the backdrop of the secular bull trend and the severe obviousness of what might only be the INITIAL decline in a much larger-degree peak/correction/reversal PROCESS, a more extensive corrective rebound in terms of both price and time is expected in the weeks ahead.

E-Mini S&P 500 240 Minute Chart

E-Mini S&P 500 Daily Chart

The factors on which this steeper corrective rebound OR the resumption of the secular bull are predicated include:

  • waning downside momentum on a daily basis above (confirmed above 17-Oct’s 2824 corrective high)
  • the Fibonacci fact that the resumed (and prospective C-Wave) decline from 17-Oct’s 2824 high came within a measly four points of the (2599) 1.000 progression of the initial counter-trend break from 2947 to 2712
  • the 13% decline from 21-Sep’s 2947 all-time high that is right in the wheelhouse of all three of the previous corrections over the past 3-1/2 years
  • the understandable erosion to historically bearish sentiment levels that warned of and accompanied the ends of all previous bull market corrections over the past 3-1/2 years.

In sum, we believe that Mon’s 2603 low completed the decline from 21-Sep’s 2947 all-time high and that the market is poised for what could be an extensive corrective rebound to the 2810-area or better OR a resumption of the secular bull.  A cautious bullish policy and exposure from at-the-market (2711) is advised with a failure below 2603 required to negate this call and warrant its cover.

E-Mini S&P 500 Weekly Chart

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