Posted on Dec 01, 2023, 08:55 by Dave Toth
Despite proof of only short-term weakness at the time, we introduced the prospect of a major peak/reversal count in 17-Nov’s Technical Blog because of developing ancillary longer-term technicals threats. Those threats have now been confirmed on a longer-term basis with this morning’s confirmed bearish divergence in WEEKLY momentum below 04-Oct’s 25.28 larger-degree corrective low. This weekly mo failure produces the technical trifecta typical of major peak/reversal environments:
- a confirmed bearish divergence in larger-degree momentum amidst
- historically extreme bullish sentiment/contrary opinion levels, and
- a complete and major 5-wave Elliott sequence.
Today’s failure below 04-Oct’s 25.28 larger-degree corrective low allow us to confirm 07-Nov’s 28.14 high as the end of AT LEAST a textbook 5-wave Elliott sequence from 29-Jun’s 22.06 low. However, this Jun-Nov portion of the bull may also have completed a much broader 5-wave sequence up from dsep’22’s 17.19 low as labeled in the weekly log chart below. And that 14-month rally from sep’22’s 17.19 low may have completed a massive 5-wave sequence up from Apr’20’s 9.21 low.
If this is the case- and it WILL be until/unless it’s negated by a recovery above 07-Nov’s 28.14 high and new key long-term bear risk parameter- this market would be considered on the verge of a major, multi-quarter or even multi-year reversal of the entire Apr’20 – Nov’23’s secular bull. And with a current 85% reading in out RJO Bullish Sentiment Index reflecting a whopping 229K Managed Money long positions reportable to the CFTC versus only 40K shorts, it’s not hard to find fuel for downside vulnerability that could be extreme.
The Fibonacci fact that the rally from Sep’22’s 17.19 low came within 21 ticks of the (28.35) 0.618 progression of the net distance of Waves-1-thru-III (9.21 – 20.69) on a log scale basis contributes to the list of peak/reversal elements.
The daily chart below details this morning’s key momentum failure below 04-Oct’s 25.28 larger-degree corrective low that, in fact, breaks AT LEAST Jun-Nov’s uptrend. This technical fact defines 07-Nov’s 28.14 high as one of developing importance and our key new long-term parameter from which longer-term commercial players can objectively base non-bullish decisions like long-covers and new bearish punts.
Another peak/reversal-threat element is this market’s engagement of the upper-quarter of its massive but lateral historical range over the past 12 years shown in the monthly log chart below. As a result of today’s bearish divergence in weekly momentum and until/unless negated by a recovery above 28.14, the risk/reward metrics of a continued longer-term bullish policy and exposure “up here” have become, at the very least, questionable. At most, beyond poor.
In Tue’s Technical Blog following Mon’s resumed weakness below 17-Nov’s 27.00 initial counter-trend and likely 1st-Wave low, we suggested that IF the market was in the early stages of a peak/reversal count, we would expect sustained, trendy and accelerated losses in the period immediately ahead. The extent of yesterday and today’s decline has “3rd-wave” written all over it and reinforces our major peak/reversal count. On this shorter-term scale, we’re defining that 27.00 1st-Wave low as our new short-term bear risk parameter as the market would NOT be expected to recoup this level while maintaining the impulsive integrity of this developing INITIAL 5-wave sequence down from 28.14. Per such, we’d expect at least an interim (4th-Wave) corrective bounce ahead of resumed 95th-Wave) losses before even the potential for a countering bullish divergence in momentum is created.
From an intermediate-term basis and after the suspected completion of an initial 5-wave sequence down, traders are advised to beware an interim but potentially extensive (2nd-Wave or right-shoulder) corrective rebuttal back up as it will take TIME for the forces that have driven the secular bull to erode and reverse. But we can only cross that bridge when the market gets us there. For the time being the trend is down on al practical scales and should not surprise by its continuance of acceleration as the extent of the initial counter-trend 1st-wave is indeterminable. Here in lies the importance to longer-term commercial players to jettison any/all remaining bullish exposure on the failure below 25.28.
These issues considered, further and potentially significant losses remain expected straight away, warranting a continued neutral-to-bearish policy with a recovery above at least 27.00 required to threaten this call. We suspect a sell-off-stemming bullish divergence in momentum somewhere along the line, but recovery attempts following such a divergence are advised to first be approached as corrective selling opportunities within a new bear market that could be major in scope.
