In yesterday's Technical Blog we again reminded traders of the factors that warn of a major base/reversal threat despite the fact that the market negated last week's base/reversal discussion with another round of new lows. And following this morning's confirmation of not only a short-term bullish divergence above Fri's 3.950 risk parameter detailed in yesterdays blog, but also one on a daily scale above 23-Aug's 4.024 corrective high basis the now-prompt Oct11 contract, we believe the market has resurrected a base/reversal threat that could be significant in scope. As a direct result of today's bullish divergences in momentum shown in the daily chart below, the market has defined yesterday's 3.780 low as a reliable low, support and risk parameter from which to objectively pursue a new bullish tack.
Integral to a broader basing/reversal threat are three technical facts shown in the weekly log close-only chart above and the monthly log chart below. First, the market's current position at the extreme lower recesses/support of this year's admittedly tame, lateral range suggests a vulnerability to a rebound or reversal. Secondly, the recent 18% reading in the Bullish Consensus measure of market sentiment (www.marketvane.net) is historically extreme and has accompanied each of this market's past three bases and reversals. Lastly, this basing/reversal threat is heading into a Sep-Nov seasonal period in which it has either based or resumed a bull trend in 14 of the past 15 years!
The 240-min chart below details this week's sharp recovery that defines today's 3.87 low as the latest corrective low and tightest risk parameter to a new bullish play. But as today's pop would only be the initial (1st-Wave) salvo in a suspected reversal that certainly warrants neutralizing all bearish policy and exposure, we advise traders to wait for proof of 3-wave, corrective behavior on a subsequent relapse attempt before committing more aggressive to a new bullish count. In the meantime, a more cautious bullish exposure via options is advised with a relapse below 3.78 now required to negate this base/reversal forecast.
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