Cable Break Reinforces Interim Correction Count

November 3, 2017 8:30AM CDT

Yesterday's sharp break below 27-Oct's 1.3070 low renders Oct's recovery attempt the 3-wave and thus corrective affair we suspected it was following early-Sep's initial 50% rebuttal to late-Sep/early-Oct's plunge from 1.3658 to 1.3027.  Subsequent intra-1.3027-to-1.3338-range lateral chop detailed in the 240-min chart below coupled with yesterday's sharp, impulsive break totally reinforces an interim bearish count that contends that Oct's recovery from 1.3027 to Wed's 1.3321 high is that of a corrective/consolidative structure that warns of a resumption of late-Sep/early-Oct's downtrend to eventual and potentially steep losses below 1.3027.

As a direct result of yesterday's relapse we are identifying 1.3340 as our new short-term risk parameter this market is now minimally required to recoup in order to threaten this bearish count.  Since 06-Oct's 1.3027 low and support has yet to be broken however, further intra-range chop could still lie ahead.

Pound Index 240 min Chart


The corrective/consolidative nature of Oct's price action following the late-Sep/early-Oct plunge from 1.3658 to 1.3027 is crystal clear in the daily chart above.  Again, further consolidative chop within the 1.3027 - 1.3338-range could still lie ahead until that 1.3027 low and support is broken.  But we strongly suspect that it's only a matter of time before the late-Sep downtrend resumes as part of what we believe could be a 3-to-5-month correction lower in sterling within a major, multi-quarter BASE/reversal process.

Pound Index Daily Chart


Pound Index Weekly Chart

From a long-term perspective we remain of the opinion that this year's rally is just the initial A- or 1st-Wave of a major, multi-quarter BASE/reversal count in sterling.  This count was introduced in 20-Sep's Technical Webcast and the market has yet to provide any evidence to refute it.  Within this major base/reversal PROCESS however we believe the combination of:

  • late-Sep's bearish divergence in momentum from
  • the exact (1.3587) 38.2% retrace of Jun'15 - Mar'17's decline from 1.5883 to 1.2168 on a weekly close-only basis above
  • AND the area of key former 1.35-to-1.38-area support-turned-resistance shown in the monthly log scale chart below (that includes the (1.3758) 50% retrace of the 2014-2017 portion of the bear from 1.7192 to 1.1988)

warns that 20-Sep's 1.3658 high and key long-term risk parameter COMPLETED EITHER the initial A- or 1st-Wave of a major base/reversal environment OR a correction within the secular bear to eventual new lows below 1.1988.  In either event we anticipate further lateral-to-lower prices- and potentially sharply lower prices- in the months ahead.

These issues considered, a bearish policy remains advised for longer-term players with strength above 1.3340 required to pare bearish exposure to more conservative levels and subsequent strength above 1.3658 to negate this count altogether and warrant its cover-and-reverse.  For shorter-term traders the lower recesses of Oct's 1.3027 - 1.3338-range is a poor risk/reward condition from which to re-establish a bearish policy, so they are advised to wait for either another intra-range rebound for a preferred risk/reward proposition and/or a break below 1.3025 to re-establish bearish exposure.  Ultimately we believe another 2-to-4 months of lower prices to the lower-1.26-handle or below lies ahead with strength above 1.3340 required to defer this call and further strength above 1.3658 to negate it.

Pound Index Monthly Chart

RJO Futures | 222 South Riverside Plaza, Suite 1200 | Chicago, Illinois 60606 | United States
800.441.1616 | 312.373.5478

The risk of trading futures and options can be substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that RJO Futures believes to be reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgement at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.

This material has been prepared by a sales or trading employee or agent of RJO Futures and is, or is in the nature of, a solicitation. This material is not a research report prepared by RJO Futures Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.

Distribution in some jurisdictions may be prohibited or restricted by law. Persons in possession of this communication indirectly should inform themselves about and observe any such prohibition or restrictions. To the extent that you have received this communication indirectly and solicitations are prohibited in your jurisdiction with registration, the market commentary in this communication should not be considered a solicitation.