The 240-min chart below shows overnight’s break below 01-Oct’s 5.533 low and short-term risk parameter discussed in yesterday’s Technical Blog confirming a bearish divergence in short-term momentum. The important by-product of this admittedly short-term momentum failure is the market’s definition of yesterday’s 6.466 high as the end of the uptrend from at least 21-Sep’s 4.766 next larger-degree corrective low and our new short-term risk parameter from which non-bullish decisions like long-covers and cautious bearish punts can now be objectively based and managed.
On a longer-term basis this short-term momentum failure is, of course, of too small a scale to conclude a broader peak/reversal of the massive secular bull market that has seen a whopping 362% increase in prices from Jun’20’s 1.517 low. Indeed, commensurately larger-degree weakness below at least 21-Sep’s 4.766 next larger-degree corrective low and key risk parameter remains required to threaten a major peak/reversal process. This presents a not uncommon situation where the short-term trend is down within the long-term trend that remains arguably up, reminding traders of the acknowledgment of and adherence to technical and trading SCALE.
If you’re a shorter-term trader with a tighter risk profile, a move to a neutral/sideline policy is advised. A bullish policy remains advised for long-term commercial players until and unless this market fails below 4.766. This said and per longer-term ancillary elements as well as the relative impractical nature of covering longs below 4.766, we’ve advised long-term commercial players to err on the side of a more conservative approach to bull risk assumption “up here” at near-8-year highs and exchange whipsaw risk- above 6.466- for much deeper nominal risk below 4.766. Yesterday’s “outside day” (higher high, lower low and lower close than Tue’s range and close) contributes to the peak/correction/reversal risk exposed by overnight’s sub-5.533 failure.
A contributing factor to a broader peak/reversal threat is the froth 79% reading in the bullish Consensus (marketvane.net) measure of market sentiment/contrary opinion. This is the highest reading since that that warned of and accompanied Nov’18’s major peak/reversal nearly FOUR YEARS ago. The potential counter to this indicator is the neutral/indifferent/confused 54% reading in our RJO Bullish Sentiment Index of the hot Managed Money positions reportable to the CFTC. The fact that this community doesn’t have its neck sticking out on the bull side could mean further and even steep gains needed to such them in to “buying the high” This disparity then puts the emphasis heading forward on sheer price action.
IF the past couple days’ relapse is the start of a more protracted peak/reversal process, then the market needs to satisfy our three key reversal requirements of:
- a confirmed bearish divergence in momentum (SATISFIED)
- proof of trendy, 5-wave impulsive behavior on the initial counter-trend break (DEBATABLE), and, most importantly,
- proof of labored, 3-wave corrective behavior on a subsequent recovery attempt (UNSATISFIED).
On an even broader scale, the monthly log chart below shows the magnitude of the 16-MONTH, 326% secular bull trend from Jun’20’s 1.517 low. We’ve acknowledged and everyone knows that the Sep-Nov period is one of seasonal strength for this market, so it’d be premature to CONCLUDE a major top at this point following proof of just short-term weakness. But the chart below shows that both of the past two major tops and reversals in 2018 and 2014 occurred into the teeth of the cold winter months. Per such and as discussed yesterday, even an admittedly short-term momentum failure should not be ignored as an early indication of a peak/reversal threat that could be major in scope.
These issues considered, traders have been advised to move to a neutral/sideline position as a result of overnight’s failure below 5.533 that now requires a recovery above 6.466 to mitigate a peak/reversal threat, reinstate the bull and warrant a return to at least a cautious bullish stance. We will be watchful for proof of labored, corrective behavior on a subsequent recovery attempt that is stemmed by another bearish divergence in short-term mo below 6.466 that could present an incredible risk/reward opportunity from the bear side. Further weakness below 4.766 will reinforce this peak/reversal count that could see lower, and possibly much lower gas prices for months or even quarters thereafter.
