Technicals, December 5, 2011; 7:50am
Thur's failure below 28-Nov's 90.50 corrective low confirmed the bearish divergence in momentum we discussed in 30-Nov's Technical Blog that led to Fri's steeper plunge. As the daily chart below shows, the intermediate-term trend is once again confirmed as down that at least perpetuates the past couple months' broader lateral trading-range environment. At most, the market could be headed for a more significant reversal lower given the still-frothy bullish sentiment and fact that on an active-continuation chart basis, this recent weakness stems from the 50% retrace of this year's 104.15 - 82.40 sell-off from Mar to Sep.
As a direct result of the past couple days' mo failure, the market has defined Thur's 92.35 high as the specific risk parameter it now is required to recoup to mitigate any broader bearish count and reinstate a broader bullish one. In lieu of such 92.35+ strength, lateral-to-lower- and possibly much lower- prices are expected with interim recovery attempts advised to first be approached as corrective selling opportunities.
The weekly log active-continuation chart below shows the bullish sentiment accorded this market in the form of our proprietary MRT Bullish Sentiment Index of hot Managed Money positions reportable to the CFTC. And indeed, at a historically frothy 89% level reflecting nearly 77K long position to just 9.5K shorts coming on the heels of its highest reading in over 10 years, there is little question that fuel for downside vulnerability is in ample supply.
As we've often discussed, such frothy bullish (in this case) sentiment levels are of no technical matter as long as the market is sustaining its uptrend. But the momentum that uptrend is compromised- as this one has been- with a bearish divergence in momentum, then that combination with the masses having their collective necks sticking out so far one way often times results in the capitulation of those positions and sharply lower levels. Along with the Fibonacci fact that the past couple months' recovery attempt has thus far stalled within a 1/4-cent of the (92.64) 505 retrace of this year's 104.15 - 82.40 decline, we believe the past few days' clear momentum failure amidst still-excessive bullish sentiment leaves this market vulnerable to further and possibly sharp losses straight away. Per such, traders are advised to move to a bearish policy, approaching interim recovery attempts as corrective selling opportunities with strength above 92.35 required to negate this view and resurrect a broader bullish count. In lieu of such 92.35+ proof of strength, traders are also advised not to underestimate this market's downside potential.
While the cattle market has yet to fail below a recent corrective low like 28-Nov's 122.15 corrective low, it's position in the middle-half of the past five months' lateral range obvious in the daily chart above and it's "outside day" Fri warns of another intra-range relapse. But with the weekly log chart below showing upside momentum arguably waning for months amidst historically bullish sentiment levels, this market may also be vulnerable to surprising losses ahead. Per such, traders are advised to move to a neutral-to-cautiously-bearish policy from current 123.25-area prices with strength above at least Fri's 124.35 high required to mitigate this view and perpetuate the broader lateral range environment.
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