In last Mon’s Technical Blog we identified 06-Jun’s 89.35 corrective low as the short-term risk parameter this market needed to sustain gains above to avoid confirming a bearish divergence in momentum that would threaten a more immediate bullish count. The daily log scale chart below shows overnight’s failure below this level that breaks at least the intermediate-term uptrend and defines 11-Jun’s 96.50 high as one of developing importance and our new short-term risk parameter from which non-bullish decisions like long-covers and cautious bearish punts can now be objectively based by shorter-term traders with tighter risk profiles.
Cotton Jul '18 Daily Chart
From a longer-term perspective however, this mo failure is of an insufficient scale thus far to threaten the major uptrend shown in the weekly log close-only chart below. Historically frothy levels in our RJO Bullish Sentiment Index- the highest in over seven years- are certainly typical of major peak/reversal conditions and should be a focus of anyone’s analysis in the period immediately ahead as a result of today’s bearish divergence in momentum. But only a glance at the daily chart above is needed to see that the past week’s setback could also easily be an interim (4th-Wave) correction within the major bull to at least one more round of new highs above 96.50.

IF the past week’s break is the start of a more prolific peak/reversal environment, the market is required to satisfy the crucial third of our three reversal requirements in the period ahead following (1) a bearish divergence in mo and (2) arguably impulsive behavior on the initial counter-trend sell-off attempt. This third requirement is proof of 3-wave, labored, corrective behavior on a subsequent recovery attempt that falls short of breaking last week’s 96.50 high. Upon such proof or a commensurately larger-degree mo failure below 15-May’s 83.36 next larger-degree corrective, even long-term players would be advised to move to a new bearish policy.

These issues considered, shorter-term traders have been advised to move to a neutral/sideline. Longer-term players are OK to pare bullish exposure to more conservative levels but to still required a failure below 83.36 to negate a bullish count altogether and move to the sidelines. We will be watchful for proof of 3-wave, corrective behavior on a recovery attempt in the weeks ahead and a stemming bearish divergence in momentum to move to a bearish policy.

Cotton Weekly Chart

RJO Market Insights

RJO Market Insights specializes in forward-thinking analysis, focused on potential market-moving events and dominant factors driving price discovery. Detailed fundamental and technical coverage across multiple commodity sectors is combined with objectively-constructed trade recommendations to provide an industry-leading product for R.J. O’Brien’s Institutional clients, commercial hedgers, introducing brokers and individual investors free of charge. Content is distributed in both text and audio formats, with specialized service offerings provided by account type.
For more information on RJO Market Insights, contact your broker or RJO representative.