Momentum, Waves, Sentiment Conspire on Cattle Top | RJO Futures

January 3, 2017 3:29AM CST

In Thur's Technical Blog we advised trailing our short-term risk parameter to 23-Dec's 115.40 smaller-degree corrective low.  But while the market's failure below this threshold Fri only confirms the end of the rally from 05-Dec's 108.175 low, ancillary evidence warns of a peak/reversal-threat environment that could be major in scope.  As a result of this bearish divergence in momentum the market has identified Fri's 118.50 as one of developing importance and our new short-term risk parameter from which all non-bullish decisions like long-covers and cautious bearish punts can now be objectively based and managed.

Cattle 60 min Cattle Daily

There's no question that the bearish divergence in momentum is only of a scale that allows us to conclude the end of the rally from only 05-Dec's 108.175 low.  HOWEVER, the following facts and observations warn of a peak/reversal-threat environment that could indeed be major in scope:

  • an arguable complete 5-wave Elliott sequence from 13-Oct's 97.80 low labeled in the daily log scale chart above
  • an "outside day" down Fri (higher high, lower low and lower close than Thur's range and close)
  • a whopping 93% reading in our RJO Bullish Sentiment Index reflecting 100K Managed Money long positions reportable to the CFTC versus just 8K shorts.

This last fact is the most incriminating point that, combined with a confirmed bearish divergence in momentum, warns of a vulnerability to lower levels.  The last time this Index reflected such a grossly bullish Managed Money position was the month before Nov'14's major peak and a nearly 2-year, 44% collapse.  We're not forecasting a similar collapse now.  But until and unless this market can diffuse this threat with a recovery above 118.50, what we are forecasting is a vulnerability to lower prices that could be major in scope.  Even a Fibonacci minimum 38.2% retrace of Oct-Dec's 97.80 - 118.50 rally doesn't cut across until 110.12.

These issues considered, both short- and long-term traders have been or are advised to move to a neutral/sideline position at-the-market and to next approach recovery attempts to the 117.25-area OB as corrective selling opportunities with strength above 118.50 negating this call, reinstating the recent uptrend and re-exposing potentially significant gains thereafter.  In lieu of such 118.50+ strength we believe this market to be vulnerable to potentially significant losses in 1Q17.

Cattle Weekly


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