We discussed the developing potential for a bearish divergence in short-term momentum in yesterday’s Technical Blog. This morning failure below our tightened short-term risk parameter at 82.30 CONFIRMS this divergence and defines Thur’s 85.67 high as the end of the rally from 16-Sep’s 71.27 low and exposes a suspected correction of this rally of indeterminable scope. And given the extent and uninterrupted manner of mid-to-late-Sep’s recovery that left nothing in the way of battlegrounds on the way up that might be looked to for support, a more extensive, if intra-range relapse should hardly come as a surprise.
The fact that this admittedly smaller-degree momentum failure stems from the upper-quarter of the 4-month range contributes to a count calling for at least interim downside vulnerability. And with an 87% reading in our RJO Bullish Sentiment Index reflecting 77K Managed Money long positions to just 11K shorts, fuel for downside vulnerability is in ample supply.
On an even longer-term basis and while acknowledging the growing prospect for another intra-four-month-range relapse that could be significant in scope, the likelihood that Jun-Sep’s 3-wave sell-off attempt is a corrective/consolidative structure maintains a long-term bullish count in the Dec contract. Commensurately larger-degree weakness below 16-Sep’s 71.27 low and key long-term risk parameter remains required to negate this count. But as a result of this morning’s momentum failure rejecting/defining a 85.67 high and short-term bear risk parameter, what the market has in store between spot and 71.27 is anyone’s guess.
These issues considered, traders have been advised to move to a neutral/sideline position as a result of today’s bearish divergence in short-term momentum with a recovery above 85.67 required to negate this call, reinstate the bull and expose potentially sharp gains thereafter. In lieu of such 85.67+ strength, an intra-four-month-range relapse is anticipated and could be extensive. Per such, traders are also advised to watch for proof of smaller-degree 3-wave corrective behavior on a recovery attempt that falls short of 85.67 for an interim and favorable risk/reward punt from the bear side.
