RJO FuturesCast

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Posted on Jan 18, 2023, 08:28 by Dave Toth

Since early-Dec’s bullish divergence in short-term momentum discussed in 06-Jan’s Technical Blog, we’ve discussed the very early rumblings of a base/correction/reversal process that could be major in scope.  While a lot of basing behavior remains anticipated following a massive 2-YEAR bear market from 178.77 to 132.60, the past couple days’ continuation of this month’s uptrend contributes to the impressive, impulsive nature of the rally and leaves Mon’s 137.53 low in its wake as the latest smaller-degree corrective low this market is now minimally required to fail below to break this uptrend and expose a corrective rebuttal lower.  In this regard, this 137.53 level serves as our new short-term risk parameter from which shorter-term traders with tighter risk profiles can objectively rebase and manage the risk of non-bearish decisions like short-covers and new bullish punts.

As we’ll detail below, today’s recovery above an abstract low at 139.77 from 13-Dec confirms 02-Jan’s 132.60 low as the end of a 5-wave sequence down from 02-Dec’s 143.18 high that might have completed a massive 5-wave sequence down from Dec’20’s 178.77 high.  Per such, this 132.60 level serves as our new long-term risk parameter from which longer-term institutional players can objectively base non-bearish decisions like short-covers and a new long-term bullish policy.

On a broader daily scale below and while it was becoming obvious over the course of the past week-and-a-half or so, today’s recovery above 13-Dec’s 139.77 (smaller-degree 1st-Wave) low theoretically negates the prospect that this month’s recovery might be a correction of Dec’s portion of the downtrend within a still-unfolding secular bear trend.  As we’ll show in the even longer-term weekly and monthly charts below, the importance of confirming 02-Jan’s 132.60 low as the end of the downtrend from 02-Dec’s 143.18 high is that this portion of the bear trend is arguably the completing 5th-Wave of an Elliott sequence that dates from Dec’20’s 178.77 high.  Per such, this 132.60 low serves as our new key long-=term bull risk parameter.

As the technical and fundamental forces that have driven such a mammoth bear market for two years are unlikely to evaporate in short order however, it is typical for base/reversal processes to include an often times extensive (B- or 2nd-wave) corrective rebuttal to the initial (A- or 1st-wave) counter-trend rally.  This is what we must be on the lookout for in the weeks and months ahead.  And herein lies the importance of shorter-term bull risk parameters like 137.53 cited above.

The weekly (above) and monthly (below) charts show the exciting and compelling elements that warn of a base/correction/reversal environment that could be major in scope:

  • the nicely developing potential for a bullish divergence in weekly and monthly momentum (confirmed above 02-Dec’s 143.18 large-degree corrective high)
  • an arguably textbook and massive 5-wave Elliott sequence down from 11Dec20’s orthodox high of 178.77 in which
  • the completing 5th-Wave down from 02-Dec’s 143.18 high was only 10 ticks away from the (132.70) 1.000 progression of Dec’20 – May’21’s 1st-Wave down from 178.77 to 168.29 since the mammoth 3rd-Wave down from Aug’21’s 177.61 high to Oct’22’s 134.02 low obviously “extended”.

To negate this major base/correction/reversal count, all the bear needs to do is relapse below 02-Jan’s 132.60 low.  Until and unless such weakness is proven, setback attempts are advised to first be approached as 3-wave corrections and long-term buying opportunities with risk/reward metrics that could be outstanding, spanning months or even quarters.

These issues considered, a bullish policy remains advised for shorter-term traders with a failure below 137.53 required to defer or threaten this call enough to warrant moving to the sidelines and waiting for a preferred risk/reward opportunity to re-buy.  Longer-term institutional players have been advised to move to a neutral/sideline position as a result of today’s recovery above 139.77.  For those looking to enter into a new bullish policy, risk is to 132.60.  Our advice is to not chase bull risk higher in this initial counter-trend rally, but to wait for the expected larger-degree correction lower for a preferred long-term risk/reward buying opportunity.

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