RJO FuturesCast

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Overnight’s continued downtrend, this time below last week’s 169.48 low, perpetuates our bearish count introduced in 25-Aug’s Trading Strategies Blog and leaves Mon’s 170.55 high in its wake as the latest corrective high this market is now required to recover above to confirm a bullish divergence in momentum, end the slide and expose at least a correction of the decline from 05-Aug’s 174.58 high.  While 170.55 is a relatively tight risk parameter, we’re defining it as our key bear risk parameter from which both short- and long-term traders are advised to rebase and manage the risk of a still-advised bearish policy and exposure.

The main reason for tightening bear risk so much, even for longer-term institutional traders, is simple:  the market’s position at the extreme lower recesses of the past 26-MONTH lateral range shown in the weekly log active-continuation chart below.  To maintain the risk/reward merits of a bearish policy “down here”, the bear needs to continue to behave in a trendy, impulsive manner lower.  A recovery above 170.55 (170.40 on a close-only basis above) would be the first solid evidence threatening or breaking this requirement.

The prospect that the decline from early-Aug’s high is a complete or completing 5-wave Elliott sequence would also gain favor if the market recovered above 170.55.  Until and unless such 170.55+ strength is shown however, the TWO-MONTH downtrend remains intact and should not surprise  by its continuance or acceleration, including a breakdown below the obviously key 167.62 lower-boundary to this massive lateral range as part of a major peak/reversal process.

These issues considered, a bearish policy and short exposure recommended at 176.00 OB remain advised with a recovery above 170.55 required to threaten this call enough to warrant taking profits and moving to the sidelines to circumvent the heights unknown of a correction or reversal higher.  In lieu of such strength, further and possibly accelerated losses should not surprise.

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