RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

Overnight’s recovery above 05-Mar’s 1.847 corrective high and our short-term but key risk parameter discussed in yesterday’s Technical Webcast confirms a bullish divergence in daily momentum.  This momentum failure is NOT of a sufficient scale to conclude the end of the secular bear trend.  Indeed, commensurately larger-degree strength above 20-Feb’s 2.024 larger-degree corrective high and long-term risk parameter remains required to, in fact, break the major downtrend.  However, for a unique collection of ancillary evidence discussed below, we believe this relatively short-term mo failure leaves yesterday’s 1.610 low in its wake as at least an objective short-term risk parameter and possibly the start of a major reversal higher.

Today’s bullish divergence in admittedly shorty-term momentum ignites and renders applicable a number of key factors that warn of a base/reversal threat that could be major in scope, including:

  • historically bearish sentiment/contrary opinion levels not seen in at least four years and, in the case of our RJO Bullish Sentiment Index, since 2008!
  • the market’s test and thus far rejection of Mar’16’s 1.611 low
  • an arguably complete 5-wave Elliott sequence down from Nov’s 2.447 high as labeled in the weekly log chart above and
  • the developing prospect for an “outside WEEK” this week (lower low, higher high and potential higher close than last week’s range and close).

These factors may not be as compelling if yesterday’s 1.610 low wasn’t so close to Mar’16’s 1.611 low when the Bullish Consensus was at similarly depressed levels.  And given the massive extent to which the Managed Money community has its neck sticking out on the bear side (146K longs to a whopping 435K shorts), it’s not hard to find reasons to believe this market will not only rebound, but could be VULNERABLE to steep gains in the weeks and months ahead as the overall market forces the capitulation of these historically massive bearish exposure.

Importantly however, and even if we’re starting a more protracted correction or reversal higher, yesterday/today’s recovery would only be considered the INITIAL A- or 1st-Wave of a broader base/reversal PROCESS.  On the heels of such a major bear trend, we would fully expect a B- or 2nd-Wave corrective rebuttal to this initial recovery attempt.  If/when the market survives that relapse attempt at a level higher that yesterday’s 1.610 low, the risk/reward merits of a new bullish policy thereafter could be fantastic.  For the time being however, all previously recommended bearish policy and exposure has been advised to be neutralized in order the circumvent the heights unknown of this initial counter-trend recovery.  We will be watchful for a bearish divergence in short-term mo needed to counter this recovery and expose that corrective relapse that could present a short-term trading opportunity from the bear side.  But ultimately, we believe such a setback will present an outstanding risk/reward opportunity for both short- and long-term players from the bull side.  Of course, a relapse below 1.610 is now required to mitigate this base/reversal count, reinstate the bear and expose potentially sharp losses thereafter.

RJO Market Insights

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