RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

The now-prompt Jun hog’s failure this morning below 15-Mar’s 97.72 smaller-degree corrective low leaves Thur’s 102.50 high in it wake as the END of a textbook 5-wave Elliott sequence up from 02-Mar’s 92.95 next larger-degree corrective low and key long-term risk parameter.  Per such, last week’s 102.50 high serves as our new short-term risk parameter from which non-bullish decisions like long-covers and cautious bearish punts can now be objectively based and managed.  While this morning’s momentum failure is of an admittedly smaller scale insufficient to conclude anything more than another interim correction within the secular bull- indeed, this setback has held the 50% retrace of Mar’s 92.95 – 102.50 rally thus far- for reasons we’ll detail below, longer-term commercial players are urged not to underestimate this short-term weakness as the potential start of correction or reversal lower that could be major in scope.

The ancillary factors that warn us to beware of a broader peak/correction/reversal-threat environment include:

  • the prospect that the first-half of Mar’s smaller-degree 5-wave Elliott sequence up is the completing wave of an equally-textbook 5-wave rally from 19-Nov’s 76.92 low labeled in the daily chart above
  • the market’s proximity to Apr’19’s 99.82 upper boundary of its massive SIX YEAR lateral range that has repelled all previous assaults, and
  • historically frothy bullish sentiment not seen since that that warned of and accompanied 2014’s infamous peak and reversal.

These are unique and compelling technical facts and observations that question the risk/reward metrics of maintaining a bullish policy “up here”.  Nonetheless, the market has yet to fail below 02-Mar’s 92.95 next larger-degree corrective low and key risk parameter needed to, in fact, break the secular bull trend.  In effect, the short-term trend is down and expected to continue until negated by a recovery above 102.50 while the long-term trend is up and expected to continue until negated by a failure below 92.95.  This emphasizes the importance of technical and trading SCALE commensurate with one’s personal risk profile.  While it would be premature to longer-term commercial players to give up on the secular bull, today’s weakness is more than sufficient for shorter-term traders to move to at least a neutral-to-cautiously-bearish stance.

Stepping back even further to a monthly log active-continuation basis below, it’s easy to pontificate on another major peak/reversal like Apr’19 and Jul’14.  But again, on a larger-degree basis, the market as not yet proven the weakness necessary to break the major bull.  This said and while a bullish policy remains advised for longer-term players, it remains the bull’s clear responsibility to sustain trendy, impulsive behavior higher above a level like 92.95 to maintain the risk/reward merits of a continued bullish policy and exposure up here.”  Its failure to do so will not only warrant the immediate cover of any and all bullish exposure, but expose a peak/reversal environment that could be major in scope and offer a fantastic risk/reward opportunity from the bear side that could span months or even quarters.

These issues considered, a bullish policy remains advised for long-term players with a failure below 92.95 required to negate this call and warrant its immediate cover.  Longer-term commercial players have the option of paring bullish exposure currently and exchanging whipsaw risk back above 102.50 for deeper nominal risk below 92.95.  Shorter-term traders are advised to move to a neutral/sideline position in order to circumvent the depths unknown of a correction or reversal lower.  We will be watchful for proof of 3-wave corrective behavior on a subsequent recovery attempt for a favorable risk/reward opportunity from the bear side in the week or two ahead.

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