Cable Confirms First Step in Base/Reversal Threat

January 23, 2017 2:36AM CST

In 12-Jan's Technical Blog we introduced the prospect for a base/reversal environment.  And while the 240-min chart below shows that the bear did make one more new low to 15-Jan's 1.1988 low, its sharp rebuke of those levels on 17-Jan and recovery above 12-Jan's 1.2317 prior corrective high resurrected elements threatening to the bear.  Subsequent strength overnight above both last Wed's 1.2417 initial counter-trend high and our short-term risk parameter defined by 05-Jan's 1.2433 corrective high confirm a bullish divergence in momentum that define 15-Jan's 1.1988 low as the END to at least the decline from 06.-Dec's 1.2776 high and possibly the long-term bear market.

GB Pound 240 min

GB Pound Daily

The daily chart above shows the confirmed bullish divergence in momentum above 1.2433 and also the market's failure to sustain levels below 11-Oct's orthodox low of 1.2090.  At the very least we believe this non-weakness "down here" perpetuates a major bear market consolidation that began with that 1.2090 low and may end up with another assault on early-Dec's 1.2775-area high/cap.  At most Dec-Jan's 1.2776 - 1.19988 may be the completing 5th-Wave to the secular bear market in sterling rates and embryonic (1st-Wave) step towards a reversal higher that could span years.

OF COURSE the past week's piddly rebound is of a grossly insufficient SCALE to even remotely utter any probability of a reversal (although we just did), so traders are urged to keep this scale issue in mind.  However, the weekly log close-only chart below and monthly log chart (bottom) show historically bearish levels of market sentiment typical of major base/reversal environments.  Proof of commensurately larger-degree strength above our long-term risk parameter defined by 06-Dec's 1.2776 high remains minimally required to raise the odds of such a major base/reversal threat.

GB Pound Weekly

At a recent 14% low the Bullish Consensus (marketvane.net) measure of market sentiment is the lowest in 15-1/2 YEARS.  A MAJOR base/reversal count stemming from such historic pessimism against the pound should hardly come as a surprise and perhaps the past week's rebound is the start of a such a reversal.  But nonetheless, proof of strength above 1.2776 remains minimally required to raise the odds of such a call to conclude positioning for it.

These issues considered, shorter-term traders with tighter risk profiles have been advised to move to a neutral/sideline position and are further advised to first approach setback attempts to former 1.2415-area resistance-turned-support as a corrective buying opportunity with a failure below 18-Jan's 1.2253 micro risk parameter required to warrants its cover. Longer-term players are advised to pare bearish exposure to more conservative levels and jettison the position altogether on strength above 1.2776 . Aimless whipsaw risk from the current middle-half of the 1.1988 - 1.2776 lateral range is also a threat in the days and weeks ahead, so a more conservative approach to risk assumption is also advised.

GB Pound Monthly

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