Posted on Dec 22, 2022, 08:19 by Dave Toth

The subsequent fallout from 15-Dec’s bearish divergence in daily momentum discussed in that day’s Technical Blog has reached a larger-degree level with yesterday/today’s break below 08-Nov’s 135.76 larger-degree corrective low and our key bull risk parameter.  By failing below 135.76, the market has rendered Oct-Dec’s recovery attempt from 134.02 to 143.18 a 3-wave structure as labeled in the daily active-continuation chart below.  Left unaltered by a recovery above 143.18, this 3-wave rebound is considered a corrective/consolidative affair that warns of a resumption of the secular bear market that preceded it.  Per such, this 143.18 level serves as our new long-term risk parameter from which longer-term institutional players can objectively base non-bullish decisions like long-covers and resumed bearish exposure.

As the market has not yet broken 21-Oct’s 134.02 low and support however, we have to acknowledge the prospect for further intra-corrective-range chop and a rebound.  Per such, we will be watchful for a relapse countering bullish divergence in short-term momentum in the period immediately ahead to warn of such.  In lieu of such a mo failure and especially if this market breaks below 134.02 straight away, the market’s downside potential thereafter is indeterminable and potentially extreme.

On a shorter-term basis, the 240-min chart below shows the impulsive-looking decline from 07-Dec’s 142.91 high in the Mar contract that lists 13-Dec’s 139.77 low as the prospective 1st-Wave low of an eventual 5-wave sequence down.  A recovery above 139.77 is required to negate this specific count, so we’re defining this level as our short-term bear risk parameter pertinent to shorter-term traders with tighter risk profiles.  Recovery attempts shy of 139.77 are advised to first be approached as corrective selling opportunities.  

Finally, the weekly active-continuation chart below shows the magnitude of the secular bear market in which Oct-Dec’s recovery attempt falls well within the bounds of a mere correction as a result of the past week’s relapse.  We discussed some longer-term base/reversal elements from mid-Nov onward, but the bull failed miserably to perform when it had the chance to following late-Nov’s break above 28-Oct’s 140.92 initial counter-trend high.  Now, to resuscitate any broader base/reversal count, the market has to recoup 143.18.  Until and unless such strength is proven, a resumption of the secular bear trend to new lows below 134.02 is anticipated.

These issues considered, a bearish policy and exposure remain advised for shorter-term traders with a recovery above 139.77 required to negate this call and warrant its cover.  Longer-term institutional players have been advised to neutralize all bullish exposure and are further advised to move to a resumed bearish policy on a scale-up from at-the-market to the 137.50-area with a recovery above 139.77 required to pare this exposure and commensurately larger-degree strength above 143.18 required to reverse into a bullish policy.

RJO Market Insights

RJO Market Insights specializes in forward-thinking analysis, focused on potential market-moving events and dominant factors driving price discovery. Detailed fundamental and technical coverage across multiple commodity sectors is combined with objectively-constructed trade recommendations to provide an industry-leading product for R.J. O’Brien’s Institutional clients, commercial hedgers, introducing brokers and individual investors free of charge. Content is distributed in both text and audio formats, with specialized service offerings provided by account type.
For more information on RJO Market Insights, contact your broker or RJO representative.