Posted on Jan 31, 2024, 10:22 by Dave Toth
By taking out 12-Jan’s 2067.3 high today, the market has reinforced a developing bullish construct discussed in Mon’s Technical Webcast by breaking Dec-Jan’s sell-off attempt and rendering it a 3-wave affair as labeled in the 240-min chart below. 3-wave moves down are considered corrective events that, ultimately, are building blocks within broader bullish counts. This week’s recovery reinforces 17-Jan’s 2004.6 low and 13-Dec’s 1987.9 low as levels/areas of support that, until/unless broken, contribute to a broader bullish count that contends the sell-off attempt from early-Dec’s high(s) is corrective/consolidative ahead of an eventual resumption of the secular bull trend that preceded it. As the 240-min chart below shows that the market has yet to recoup 28-Dec’s 2098.2 high however, it would be premature to conclude that this bull market correction doesn’t have further lateral-to-lower consolidation to go.
An important by-product of today’s continuation of a 2-week recovery is the market’s definition of yesterday’s 2047.1 low as the latest and tightest smaller-degree corrective low the market must sustain gains above to maintain a more immediate bullish count. Its failure to do so will confirm another intra-range bearish divergence in short-term momentum and expose another intra-range setback. Such a sub-2047.1 failure would be particularly important stemming from the upper-recesses and resistance of the past couple months’ lateral range. Per such, we’re defining 2047.1 as our new short-term parameter from which the risk of non-bearish decisions like short-covers and cautious bullish punts can be objectively rebased and managed. Indeed, if mid-Jan’s 2004.6 low COMPLETED the 3-wave correction down from early-Dec’s high(s), the bull would be expected to BEHAVE LIKE ONE by sustaining trendy, impulsive and increasingly obvious behavior higher straight away. A failure below 2047.1 would defer or threaten such a more immediate bullish count.
Stepping back to consider the past few months’ price action, both the daily high-low log chart above and the daily close-only log chart below show Dec’s run to new all-time highs that reaffirm the secular bull trend. Additionally, it is clear that the past couple months’ “non-uptrending” behavior is either a correction/consolidation within the secular bull market that would be expected to resume OR the start of a larger-degree reversal lower. By virtue of this week’s recovery, we believe the odds of the bull market correction scenario have been reinforced. However, until/unless the market breaks at least the 2091-area that has capped this market as resistance on a daily close basis, there is no way to know that further lateral consolidation doesn’t lie ahead.
We know that commensurately larger-degree weakness below 13-Dec’s 1987.9 intra-day low and/or 12-Dec’s 1995 low close remains required to threaten a broader bull market correction count and expose a larger-degree and more vertical correction or reversal lower. That’s pretty straight forward as well as a lot to risk, even for commercial players and investors. Herein lies the importance of a tighter but objective bull risk parameter like 2047.1 discussed above, especially from the more precarious position close to the upper recesses and resistance of the past couple months’ range. Again, the risk/reward merits of maintaining a bullish policy “up here” against this resistance remain only if the market sustain gains above 2047.1. A failure below that level would expose at least a prospective return to the lower recesses of the 2-mponth range or possibly worse.
Lastly, the weekly log close-only chart below cleans out a lot of the intra-week “noise” and volatility from early-Dec and that rogue intra-day high from 04-Dec at 2152.3 and shows the market thus far sustaining gains above THREE YEARS of resistance from the 2046-to-2025-area, which is as it should be if the bull still has legs to it. The low weekly close to the past couple months’ suspected correction is last Fri’s 2018.2 low close. A weekly close below this level could quickly flip the directional script back to the bear side. This is another level and metric for bulls to keep in mind.
These issues considered, a cautious bullish stance is advised with a failure below 2047 required to defer or threaten this call enough to warrant moving to a neutral/sideline position to circumvent the depths unknown of a continued lateral-to-lower correction or a more protracted reversal lower. In lieu of such sub-2047 weakness, further and possibly sharper gains are expected.
