Cattle Rebound Threatens Peak/Reversal Count, Doesn't Negate It | RJO Futures

February 23, 2017 9:44AM CST

The market's recovery yesterday above our short-term risk parameter at 116.65 negates the specific bearish count we introduced in 14-Feb's Technical Blog but it doesn't necessarily mitigate the broader peak/reversal threat from 19-Jan's 120.325 high.  There's no question that at least the intermediate-term trend is up as a result of yesterday and today's strength that defines 13-Feb's 112.075 low as one of developing importance and possibly the end of a simple 3-wave correction down from 19-Jan's 120.325 high ahead of a resumption of the major uptrend from last Oct's 97.25 low.  HOWEVER....

The past week's recovery has thus far retraced 61.8% of Jan-Feb's 120.325 - 112.075 decline and is well within the bounds of a peak/reversal PROCESS to an impressive 3-month rally.  A break above 19-Jan's 120.325 high and our key risk parameter remains required to truly negate a broader peak/reversal count.

From a geeky Elliott Wave perspective we believe the (B- or 2nd-Wave) correction to late-Jan initial counter-trend decline actually began from 01-Feb's 112.75 low, with the subsequent drop from 07-Feb's 116.65 high to 13-Feb's 112.075 low considered a b-Wave "irregular" within the B- or 2nd-Wave correction that is now in its completing c-Wave stage that would be expected to peter out somewhere between the (117.175) 61.8% retrace and Jan's 120.325 high.  A micro momentum failure below yesterday's 115.025 minor corrective low would be the first reinforcing evidence of this ultimately bearish count.

Live Cattle 60 min Chart

Live Cattle Daily Chart

We would remind traders of the longer-term factors that warn of a broader peak/reversal environment as long as 19-Jan's 120.325 high remains intact as a resistant cap and key risk parameter.  These factors, introduced in 26-Jan's Technical Blog, include:

  • a confirmed bearish divergence in momentum that defines 19-Jan's 120.325 high as the
  • END of a 5-wave Elliott Wave sequence up from 13Oct16's 97.25 low amidst
  • historically frothy levels in our RJO Bullish Sentiment Index and the rejection thus far of
  • a pair of long-term Fibonacci retracement relationships at 122.275 and 120.23 that have sandwiched Jan's 121.45 high on a weekly log active-continuation chart basis below.

These factors will be nullified if/when the market recoups 120.325.  Until and unless it does, we cannot ignore the broader bearish count that contends the current rebound is not only part of a typical peak/reversal PROCESS, but also that this rally may be presenting an outstanding risk/reward selling opportunity ahead of a major correction or reversal of Oct-Jan's entire 97.25 - 120.325 rally.

These issues considered, shorter-term traders have been advised to move to a neutral/sideline position.  We will be watching for a short-term mo failure below 115.025 that will arrest the current rebound and reject/define a more reliable high from which a resumed bearish policy cab then be objectively based and managed.  Longer-term players are advised to maintain a cautious bearish policy and required further strength above 120.325 to negate this call and warrants its cover.

Live Cattle Weekly Chart

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