RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

For a confluence of technical reasons we’ve been dancing around the prospect of a base/reversal-threat environment for week while Oct’s price action has been erratic, aimless-to-lower and challenging.  Nonetheless the intermediate-to-longer-term trend remains arguably down with a recovery above 19-Oct’s 128.05 smaller-degree corrective high and short-term risk parameter minimally required to stem the slide and expose even an interim correction higher, let alone a reversal.

This said however and despite such a smaller-degree corrective high and risk parameter exposing the same type of whipsaw risk we’ve already seen a couple times now over the past month, traders are advised to approach this 128.05 level as a pivotal one around which to toggle directional biases and exposure.  For the market’s inability to sustain Oct losses below 128.05 will provide the first concrete proof of a confirmed bullish divergence in momentum.  And while such an admittedly smaller-degree divergence is of an insufficient scale to conclude a larger-degree base/reversal environment, it would define “enough” of a low and support from which non-bearish decisions like short-covers and cautious bullish punts could be objectively based and managed.

Coffee 240 min Chart


Coffee Daily Chart

The factors that warn of a BASE/reversal environment on a broader scale are unique and compelling and include:

  • clearly waning downside momentum on a daily basis above and below from
  • the extreme lower recesses of the past five months’ range
  • the decline from 15-Sep’s 141.40 corrective high close spanning an exact length at 122.95 (i.e. 1.000 progression) to Aug-Sep’s preceding 146.30 – 127.85 plunge on a daily close-only basis below amidst
  • historically bearish levels of market sentiment.

Coffee Daily Chart


The weekly log active-continuation chart below shows the market’s position at the lower-quarter of the past couple years’ range amidst a recent 22% reading in the Bullish Consensus (marketvane.net) that’s the lowest since Mar’15 and 29% reading in our RJO Bullish Sentiment Index of the hot Managed Money positions reportable to the CFTC that’s the lowest in nearly NINE YEARS.  The only trouble thus far with these contrary opinion elements is that they are not applicable as technical tools without an aaccompanying bullish divergence in momentum needed to, in fact, stem the downtrend and reject/define a more reliable low and support from which the risk of non-bearish decisions can be objectively based and managed.  A short-term mo failure above 128.05 would be start while commensurately larger-degree strength above 10-Oct’s 132.70 larger-degree corrective high and key risk parameter would settle the issue.

Coffee Weekly Chart


Finally, the monthly log scale active-continuation chart below shows the market at the lower recesses of a range that has constrained this market for 10 years and includes an arguable contracting triangle bounded by the blue trend lines.  “Down here”, on top of Jun’s 115.50 low and Jan’16’s 111.05 low, a continued bearish policy is a slippery slope.  Nonetheless, until and unless the market recoups at least 128.05, there’s no way to know the market is priming itself for a major breakdown below the past years’ tons of support.  But if it cannot sustain recent losses below 128.05 that will confirm a bullish divergence in short-term momentum, we believe the confluence of factors listed above will immediately contribute to a base/reversal count that could be major in scope and offer a terrific risk/reward buying opportunity.

These issues considered, a neutral-to-cautiously bearish policy remains OK, with a recovery above 128.05 not only threatening this count enough to warrant its immediate cover, but also expose a BASE/reversal count that could expose a multi-month or even multi-quarter reversal higher.  Per such all cautious bearish exposure is advised to be neutralized on the immediate recovery above 128.05 where cautious bullish exposure could also be deployed.  The risk of establishing bullish exposure on the initial break above 128.05 is that it relegates risk assumption to the current 121.20 low.  For a preferred risk/reward punt on the bull side after a 128.05+ divergence however, we’d like to see proof of 3-wave and thus corrective behavior on a subsequent relapse attempt.  In sum we believe toggling directional biases and exposure around 128.05 will be a fruitful endeavor months down the road.


Coffee Monthly Chart


RJO Market Insights

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