In Fri's Technical Blog we discussed the bearish divergence in very short-term momentum that stemmed this month's rally. But against the volume of nearly six months of basing behavior this mo failure is of too small a degree to first be approached as anything other than another correction and buying opportunity.
The hourly chart of the now-prompt May contract shows that this short-term mo failure identified last week's 3.87 high as one of developing importance and a micro risk parameter from which non-bullish decisions like long-covers and cautious bearish punts can now be objectively based and managed. This said however, the broader trend remains up with weakness below at least our short-term risk parameter defined by 06-Feb's 3.70 low required to threaten the broader recovery.
Interestingly, the past few days' relapse from 3.87 spanned a length identical (i.e. 1.000 progression) to late-Jan's previous sell-off attempt from 3.77 to 3.63 before yielding to the broader recovery.
The daily (above) and weekly (below) log scale charts of the May contract show the past 5-1/2-month basing behavior. TO THIS POINT this recovery is only a 3-wave affair that COULD be a broader bear market correction. But until and unless this market breaks the clear and present uptrend with weakness below at least 3.70 and preferably 30-Jan's larger-degree corrective low and key risk parameter at 3.63 there is no way to know that the rally from 01-Dec's 3.49 low isn't the 3rd-Wave of a major correction or reversal higher similar to such spikes that occurred in each of the past two years.
Indeed, the weekly chart of the most active futures contract below shows significant price spikes the past two years stemming from historically bearish sentiment levels similar to those that warned of and accompanied last Sep's base/reversal. This chart also shows the market flirting with the 50% retrace of last year's entire 4.39 - 3.15 decline. But traders are reminded that such merely derived technical levels are of no value in the absence of an accompanying bearish divergence in momentum needed to, in fact, break the clear and present uptrend.
These issues considered, a bullish policy and exposure remain advised with weakness below 3.70 required for shorter-term traders to move to the sidelines and for longer-term players to trim longs to more conservative levels. Ultimately a failure below 3.63 is required for longer-term players to jettison the position altogether ahead of what at that point could be a resumption of the secular bear. In lieu of such weakness further and possibly accelerated gains remain expected.