July 31, 2012; 6:35am
Just five days after confirming a bearish divergence in daily momentum that warns of a larger-degree peak/reversal process, the 240-min chart below shows the developing potential for a bullish divergence in momentum that, if confirmed above Thur's 179.50 corrective high, will stem the slide from 20-Jul's 190.85 high and expose a corrective rebuttal to that initial 190.85 - 173.05 decline. Per such, shorter-term traders with tighter risk profiles are advised to use 179.50 as a short-term risk parameter around which non-bearish decisions like short-covers can be objectively based.
Such corrective recoveries within larger-degree peak/reversal processes are fully expected and serve to not only reinforce such a process, but also provide a preferred risk/reward opportunity to position for the reversal (lower, in this case).
We remain concerned about a steeper move south for a few reasons. First and as a direct result of the confirmed bearish divergence in daily momentum shown in both the daily log chart above and the daily close-only chart below, we believe that 20-Jul's 190.85 high completed a 5-wave Elliott sequence from 14-Jun's 148.85 high. That 190.85 high failed to break above 11-Jul's rogue 192.20 high, but on a close-only basis below, the prospect that the Jun-Jul rally is a complete 5-wave affair is easy to acknowledge and now consider as a peak/reversal threat. And the fact that the smaller-degree bullish divergence threat cited above stems from the exact 38.2% retrace of Jun-Jul's 149.20 - 188.95 rally on a close-only basis contributes to that interim recovery threat. But until or unless this market can prove strength above 190.85 or above 188.95 on a closing basis, traders are advised to approach the expected pop as a corrective selling opportunity.
Another contributing factor to a peak/reversal argument is the dominance of the very long-term downtrend shown in the weekly log chart below. And the fact that Jun-Jul's recovery attempt has thus far stalled at the exact and Fibonacci minimum 38.2% retrace of the suspected 3rd-Wave decline from 290.85 to 148.85 would seem to reinforce the prospect that this major downtrend is still intact.
These issues considered and while allowing for an interim pop following a confirmed bullish divergence in short-term momentum above 179.50, traders are advised to first approach the expected pop as a favorable risk/reward selling opportunity. This said, we also advised traders to wait for the requisite bearish divergence in short-term momentum needed to stem the expected pop and define a specific high and risk parameter from which such bearish exposure can be objectively based. In the meantime, a neutral/sideline policy is advised from current 177.00-area prices.
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