The market’s gross failure thus far to sustain this week’s earlier break to a new 34-YEAR low in the futures contract and recovery above both our short- and longer-term risk parameters at 1.2236 and 1.2320 ignites a confluence of factors that warn of a base/correction/reversal-threat environment that could prove major in scope.  Obviously, we cannot conclude a major base/reversal following just a couple days’ rebound, but this relatively minor bullish divergence in momentum does identify Tue’s 1.1965 low clearly as one of developing importance and our new longer-term risk parameter from which non-bearish decisions like long-covers can be objectively based and managed.

On a smaller scale detailed in the 240-min chart below, today’s continuation of the past couple days’ reversal leaves today’s 1.2216 low in its wake as a very minor corrective low that can be used as a short-term risk parameter to non-bearish decisions by shorter-term traders with tighter risk profiles.  This 1.2216 risk parameter may come in handy in confirming the END to what we believe is just an initial (A- or 1st-Wave) rally that, given the magnitude of the secular bear trend, is highly likely to be rebutted by a (B- or 2nd-Wave) corrective relapse.  This correction could be extensive, retracing more than 61.8% of the initial counter-trend attempt.  But such a correction could present an outstanding risk/reward opportunity from the bull side in the week or two ahead.

The unique and compelling factors that warn of a major base/correction/reversal environment include:

  • today’s bullish divergence in daily momentum shown in the daily chart above
  • an arguably complete (textbook even) 5-wave Elliott sequence down from 13-Mar’s 1.3383 high
  • a developing “outside WEEK up” (lower ow, higher high and higher close than last week’s range and close)
  • the failure to sustain losses below Jan’17’s historic 1.2001 low and, most indicting,
  • historically bearish sentiment/contrary opinion levels not seen in over TWO YEARS.

To be sure, the longer-term bear trend has been massive and it will require commensurately larger-degree strength above at least the 1.25-handle to expose a major reversal higher.  The weekly log chart below shows key former support from Dec’18 around the 1.2500-area and 1.2502 is the 38.2% retrace of Mar-Sep’s 1.3383 – 1.1957 portion of the bear, so the general 1.2500-area should be approached as a key resistance candidate.

Further evidence in the form of labored, 3-wave corrective relapse attempts followed by a resumption of this week’s presumed initial counter-trend rally is minimally required to reinforce a broader base/reversal count.  But until and unless Tue’s 1.1957 low and new key risk parameter is broken, the technical facts listed above identify a unique and compelling argument for moving to at least a neutral/sideline policy if not a cautiously bullish one.

Finally, the monthly log chart below shows this week’s poke below Jan’17’s 1.2001 low to the lowest level in the futures contract since Apr 1985.  But while commensurately larger-degree strength in the weeks and even months ahead obviously remains required before we can conclude a major reversal, the market has thus far identified the 1.20 level/area/condition as one of developing importance.  A clear, impulsive break below 1.1950 is now required to mitigate any base/correction/reversal count, reinstate the secular bear and expose potentially extensive losses thereafter.  Until and unless such weakness is resurrected, traders are advised to move to a neutral-to-cautiously-bullish policy and first approach setback attempts to the 1.2150-area or below as corrective buying opportunities after a bullish divergence in short-term mo stems such a relapse and specifies a low and support from which such bullish punts can be objectively based and managed.

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