Initial Euro Pop Done, Preferred R/R Buy Ahead

August 31, 2018 11:49AM CDT

In our last Technical Blog from Tues we continued to discuss what we believe is the start of a broader base/correction/reversal environment but warned against "chasing" the suspected initial (A- or 1st-Wave) rally from 15-Aug's 1.1327 low detailed in the 240-min chart below.  Rather, we advised waiting for the prospective (B- or 2nd-Wave) corrective rebuttal to the rally from 15-Aug's 1.1327 low.

With yesterday and today's break below Wed's initial counter-trend low on a very minor scale, the market has confirmed a bearish divergence in momentum that defines Tue's 1.1751 high as the END of what looks to be a textbook 5-wave Elliott sequence up from 1.1327.  In Fibonacci fact, the completing 5th-Wave from 23-Aug's 1.1548 low came within just six pips of its (1.1745) 0.618 progression of the net length of Waves-1-thru-3 from 1.1327 to 1.1645, a typical progression relationship for 5th-waves.

As a result of this admittedly short-term mo failure the market has defined Tue's 1.1751 high as our new short-term risk parameter from which non-bullish decisions like long-covers and cautious bearish punts can be objectively based and managed.  We have also marked the 50% and 61.8% retraces of the 1.1327 - 1.1751 rally at 1.1539 and 1.1489, respectively, as levels/areas around which to watch for a countering bullish divergence in momentum that could present one of the best risk/reward buying opportunities heading into the last third of the year.

Euro Sep '18 240 Minute Chart

Euro Daily Chart

Traders are reminded of the technical elements on which our broader base/reversal count is predicated:

  • the prospect that the decline from 16-Feb's 1.2580 high is a (textbook) complete 5-wave Elliott sequence as labeled in the daily log chart above and weekly close-only chart below
  • the market's failure to sustain mid-Aug losses below six weeks of former 1.15-handle-area support-turned-resistance
  • the erosion in bullish sentiment to historically low levels not seen in a year-and-a-half
  • Jan-Aug's exact 50% retrace of Dec'16 - Jan'18's entire 1.0453 - 1.2456 rally on a weekly close-only basis in the cash Euro amids
  • waning downside momentum on a weekly basis.

Thus far, the market has only satisfied two of our three key reversal requirements on a scale that matters relative to the magnitude of this year's decline:

  1. a confirmed bullish divergence in daily momentum that stemmed the downtrend at 1.1327
  2. proof of trendy, impulsive, 5-wave behavior on the initial counter-trend rally.

The key third requirement of proof of 3-wave, corrective behavior on a subsequent relapse attempt remains to be satisfied.  But per the discussion above we believe that that suspected (B- or 2nd-Wave) correction lower has begun from Tue's 1.1751 high.  If, in the days or even the next couple/three weeks this market labors in lateral-to-lower price action that is ultimately stemmed by another bullish divergence in short-term mo- perhaps down around the 1.1540 or 1.1490-areas, we believe a tremendous risk/reward buying opportunity will be presented ahead of a resumption of the broader base/reversal process to eventual new highs above 1.1751.  Until and unless this relapse is stemmed by such a bullish divergence in mo however, we can't ignore the alternate possibility that the second-half of Aug's rebound completed or defined the upper end of a correction within this year's major bear ahead of a resumption of that bear to new lows below 1.1327.

These issues considered, a neutral-to-cautious-bearish policy is advised from the 1.1650-area OB with a recovery above 1.1751 negating this shorter-term call, reaffirming the broader base/reversal count and exposing potentially sharp gains thereafter.  We will be watchful for a bullish divergence in momentum around the 1.1540-to-1.1490-range or lower for a risk/reward buying opportunity that could be very compelling for the remainder of this year.

Euro Weekly 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.