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Cattle Bull Shows First Sign of Weakness, Vulnerability; Beware Top

Posted 12/04/2019 10:50AM CT | RJO Market Insights

In Fri’s Technical Blog following the latest spate of strength for the past quarter’s major bull trend, we identified a minor corrective low from 26-Nov at 124.875 that the market needed to sustain gains “up here” to maintain a more immediate bullish count.  Its failure below this level this morning, as well as yesterday’s 125.025 initial counter-trend low, confirms a bearish divergence in short-term momentum that defines Fri’s 127.15 high as one of developing importance and possibly the end of a relatively massive 3-month, 5-wave Elliott sequence from 09-Sep’s 105.125 low.  In this regard, this 127.15 high then serves as our new short-term risk parameter from which shorter-term traders with tighter risk profiles can objectively base non-bullish decisions like long-covers and cautious bearish puts.

Moving back to a daily scale above, a break below 22-Nov’s 123.30 next larger-degree corrective low remains required to confirm a bearish divergence in momentum of a scale sufficient to break Sep-Nov’s major uptrend.  But the prospect that last week’s resumption of the bull is the completing 5th-Wave of a 5-wave Elliott sequence from 09-Sep’s 105.125 low is clear.  And given the Feb contract’s slowed rate of ascent near its prior contract high of 126.30 back in Apr, it’s hard not to beware the threat of a peak/correction/reversal environment that could be major in scope.  Minimally, the risk/reward merits of maintaining a bullish policy “up here” come into question.

Looking at a weekly log scale chart of the most active contract below, here too, the market’s position at the extreme upper recesses of the past three year range warrant a more conservative approach to bullish risk assumption, with a failure below 123.30 confirming a bearish divergence in momentum that would, in fact, break Sep-Nov’s uptrend.  And given the extent and uninterrupted nature of this rally that left little former battle grounds in its wake that can now be looked to as support candidates, the market’s downside potential below 123.30 is advised to be approached as indeterminable and potentially severe.

These issues considered, shorter-term traders have been advised to neutralize bullish exposure while longer-term players are advised to pare bullish exposure to more conservative levels and jettison the remaining exposure on a failure below 123.30.  For those looking or willing to take a punt on the bear side, you’re OK to do so with a recovery above at least 125.90 and preferably 127.15 required to threaten and negate this call and warrant its cover.

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