Require Mo Failure Before Bottom-Picking Suspected S&P Correction | RJO Futures

September 15, 2016 3:30AM CDT

09-Sep's clear break below 01-Sep's 2155 initial counter-trend low confirmed the peak/reversal environment we had negotiated the prior couple weeks.  Against the backdrop of the secular bull market shown in the weekly log scale chart below, we have advised longer-term traders to first approach this setback as another corrective buying opportunity.  Immediately following 09-Sep's break below 2155 we discussed the HUGE technical merits of the 2134-to-2105-range as a long-term support candidate in that day's Technical Blog .  This range capped the market as major resistance from May'15's 2134 high until early-Jul'15's breakout above it that rendered it a key support condition.  Now that the market has returned to this area, we need the it to prove "non-weakness" to reinforce our assertion that this setback is indeed a corrective buying opportunity rather than the start of a more protracted move south.  And the way a market objectively stems a downtrend is via a confirmed bullish divergence in momentum.

Emini Weekly

Emini Daily

A trend is the simplest technical pattern there is.  In this case we're focusing on the downtrend from 08-Sep's 2183 high.  Although there certainly has been some volatility since last Fri's relative collapse, the trend has been rather obviously down.  As with all downtrend patterns of lower lows and lower highs the negation of that trend comes from a recovery above a prior corrective high.  In the 240-min chart below we have identified two such highs at 2135 and 2156 . A micro recovery above 2135 isn't as indicative of strength as a recovery above 2156, but such a 2135+ recovery would, in fact, define a rejected low and parameter from which any non-bearish decisions like short-covers and new cautious bullish punts could be objectively based and managed.

Obviously, the odds of aimless whipsaw risk are higher the shorter-term one gets with identifying such toggle points.  There is no way around this.  It's simply the nature of the trading beast.  Greater proof of strength above 2156 increases the odds of a longer-term bullish count, but then again it also requires commensurately greater nominal risk assumption because it's farther away from the rejected, supportive low and new risk parameter.

In sum, the daily and weekly log scale charts above clearly show the 2134-to-2105-range as a hugely important technical condition that we believe should support the market within the context of an ongoing secular bull market.  IF this is the case, then we should keep a keen eye on even a micro momentum failure from this area above a very tight but objective micro risk parameter like 2135 . UNTIL such proof of "non-weakness" is shown, the intermediate-to-possibly-longer-term trend remains down and should not surprise by its continuance or acceleration.  A recovery above 2135 provides what we believe is a unique and compelling risk/reward condition from which to base non-bearish decisions like short-covers and cautious bullish punts with a subsequent failure below whatever low was rejected/defined (2107 currently) required to negate that call.

Emini 240


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