RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

Fri’s continuation of last week’s smart recovery above our key risk parameter defined by 11-Apr’s 74.10 corrective high confirms 21-Apr’s 67.77 low as the END of a 5-wave decline from 08-Feb’s 80.35 high and new long-term risk parameter from which non-bearish decisions like short-covers can be objectively based and managed.  This said, the market’s quick return to the middle of the 7-month range bounded by that 80.35 high and last Sep’s 66.40 low presents a poor risk/reward condition from which to initiate new directional exposure.  Per such, traders are advised to wait for and require proof of 3-wave corrective behavior on a subsequent relapse attempt before considering a new bullish policy.

Lean Hogs Daily Chart

The hourly chart below shows that Thur/Fri’s resumption of last week’s recovery left Wed afternoon’s 70.62 low in its wake as the latest smaller-degree corrective low and one that shorter-term traders can use as an objective short-term risk parameter to any bullish punts.  But given the magnitude of Feb-Apr’s collapse and the extent and “obviousness” of last week’s initial counter-trend rebound, traders are advised to beware a (b- or 2nd-Wave) correction lower that could be extensive and provide a preferred risk/reward buying opportunity as opposed to chasing longs “up here”.

Lean Hogs 60 min Chart

Lean Hogs Weekly Chart

We introduced the prospect for a base/reversal-threat condition in last Tue’s Technical Blog because of:

  • the market’s proximity to the extreme lower recesses of the 7-month range
  • the prospect of a completing 5-wave Elliott sequence and
  • return to historical lows in our RJO Bullish Sentiment Index shown in the weekly log close-only chart of the Jun contract above and as an excerpt (below) from our CFTC page in this Market Insights website.

The graphic below shows the huddled masses chasing/establishing new bearish exposure pretty much throughout the entire month of Apr, reaching its recent high in short exposure of 44,389 in Fri’s update on Managed Money positions as of the close of trading on Tue 25-Apr.  It’s likely that shorts sold “in the proverbial hole” the week before last contributed to the sharp extent of last week’s rebound as the market forced their capitulation.  As the weekly chart above shows, the current 55% reading in our RJO BSI is the lowest in two years and could easily result in a reversal higher of the same magnitude as Sep-Feb’s recovery from 67.20 to 79.12.

These issues considered, all previously recommended bearish exposure has been advised to be covered at 71.53 for shorter-term traders and at 74.11 for long-term players.  As for entering a new bullish policy however, we advise traders to wait for and require proof of 3-wave corrective behavior on a subsequent relapse attempt before that will present a preferred risk/reward condition.



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