Posted on 12/27/2016 9:47 AM by Dave Toth
Last Thur’s break below Tue’s 1.2313 for a new low to this month’s reversal leaves Wed’s 1.2392 high in its wake as the latest smaller-degree corrective high this market now needs to sustain losses below to maintain a more immediate bearish count. Its failure to do so would confirm a bullish divergence in momentum needed to stem the slide and expose at least a slightly larger-degree rebound and possibly contribute to a broader base/reversal threat. In this regard traders are advised to trail protective buy-stops to a level just above 1.2392 on shorts from the 1.2700-area recommended in 07-Dec’s Trading Strategies Blog.
As recently discussed the extent of this month’s relapse renders the recovery attempt from 11-Oct’s orthodox low of 1.2090 to 06-Dec’s 1.2776 high a 3-wave affair as labeled in the daily chart above. Left unaltered by a recovery above 1.2776, this 3-wave recovery is considered another correction within the secular bear trend to at least one more round of new lows below 1.2090. In this regard 1.2776 remains as our key long-term risk parameter to a still-advised bearish policy for longer-term players.
The monthly log scale chart below shows the magnitude of the secular bear market from 2007’s 2.1160 high. 06Dec16’s 1.27776 “larger-degree” corrective high and key risk parameter discussed above hardly registers on this scale. Arguably, the market’s failure to sustain this YEAR’S losses below former key support-turned-resistance around the 1.35-to-1.38-range would be required to break the secular bear trend in GBPUSD rates. But for most traders we believe strength above 06-Dec’s 1.2776 is of a scale sufficient to threaten the secular bear enough to warrant moving to at least a neutral policy.
Market sentiment figures are understandably historically bearish and typical of major BASE/reversal-threat environments. But traders are reminded that sentiment is not an applicable technical tool in the absence of a confirmed bullish divergence in momentum needed to stem the clear and present downtrend. Herein lies the importance of identifying corrective highs and risk parameters like 1.2392 and especially 1.2776.
In sum, a bearish policy remains advised with strength above 1.2392 required for shorter-term traders to take profits on shorts advised from 1.2700 and move to a neutral/sideline position and circumvent the heights unknown of a correction or reversal higher. In lieu of such 1.2392+ strength we anticipate further losses to eventual new lows below 1.2090. The market’s remaining downside potential thereafter is indeterminable and potentially steep.