RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

While the market hasn’t yet taken out 20-Jul’s 124.75 larger-degree corrective low and key long-term risk parameter it needs to break to confirm a bearish divergence in WEEKLY momentum needed to break the secular bull trend, its gross and clear failure to sustain last week’s bust-out above the past TWO MONTHS’ resistance questions the risk/reward merits of maintaining a bullish policy “up here” enough to warrant a move to a neutral-sideline policy by even long-term commercial player.  This market has been laboring to sustain upside breakouts for months with waning upside momentum pretty much all year.  And while it’s certainly premature to conclude a top to a 16-month uptrend following relatively minor weakness thus far, at this point there is no way to know the depth of a correction or reversal lower.  By the same token, we know precisely where non-bullish decisions like long-covers and early cautious bearish exposure are negated:  above 24-Aug’s 132.85 intra-day high and/or 23-Aug’s 132.05 high daily close.

IF the past week’s relapse is the start of a broader peak/reversal environment, then this market needs to satisfy our three reversal requirements:

  1. bearish divergence in momentum needed to break the uptrend (still debatable)
  2. proof of trendy, impulsive behavior on the initial counter-trend break (satisfied) and, most importantly,
  3. proof of 3-wave corrective behavior on a subsequent recovery attempt that falls shy of the rejected/defined high at 132.85 (unsatisfied).

Per such and while the past week’s sell-off is sufficient to neutralize bullish exposure in order to stem further bloodletting of previous bullish exposure, traders are advised to be on the lookout for a rebuttal to this relapse as the forces that have driven the 16-month bull are unlikely to evaporate quickly.  Moreover, given the magnitude of the secular bull trend, we should not be surprised by a “more extensive” corrective rebound (i.e. 61.8% ret or more).  If/when the market produces this recovery, we will be keeping a keen eye on MOMENTUM once again, where a bearish divergence in short-term momentum will be required to arrest that recovery and reject/define a more reliable high from which an acute risk/reward opportunity from the bear side may be presented.

Looking at the weekly close-only chart of the Oct contract above and weekly log active-continuation chart below, long-term peak/reversal threats to the bull include:

  • upside momentum that’s been waning all year
    • the bearish divergence in WEEKLY momentum of which will be confirmed on a weekly close below 09-Jul’s 125.55 corrective low close
  • a new high of 91% in our RJO Bullish Sentiment Index that’s the highest in over two years
  • an arguably complete or completing 5-wave Elliott sequence up from Apr’20’s 103.00 low in the Oct contract as labeled above in which
    • the rally from Oct’20’s 106.125 low came within $0.60-cents of the (129.675) 2.618 progression of Apr-Aug’20’s 103.00 – 112.00 1st-Wave and, most incriminatingly
  • the market’s proximity to the extreme upper recesses of a range that has totally repelled EVERY rally attempt over the past FOUR YEARS.

To be sure, the 16-month rally from Apr’20’s 76.60 low is a massive one that is arguably still intact and could still blow away the four year highs and resistance.  But to maintain a bullish policy “up here”, it is absolutely imperative that the bull continue to BEHAVE LIKE ONE by sustaining trendy, impulsive behavior higher.  Last week’s relapse is NOT behavior consistent with a bullish count that now, quite simply and objectively, requires a recovery above 132.85 to be reinstated and warrant a return to a bullish policy.  Until and unless such strength is proven, the risk of a major correction or reversal lower becomes greater.  In effect, we’re advising longer-term commercial players to exchange whipsaw risk above 132.85 for deeper nominal risk below 125.55.

Better bein’ out, wishin’ you were in, than in, wishin’ you were out.”

Complicit in this peak/reversal threat is the extent to which the Managed Money community has its neck sticking out on the bull side.  At 91% reflecting a whopping 102K long positions to just 9.5K shorts, this indicator is at its highest level since that that warned of and accompanied 2Q19’s major peak and reversal that resulted in a 6-month, 28% meltdown.  Again, as we discuss all the time, sentiment/contrary opinion is not an applicable technical tool in the absence of a confirmed bearish divergence in momentum needed to even threaten, let alone break the clear and present uptrend.  And as stated above, it’s debatable whether the past week’s relapse is sufficient to conclude a momentum failure of a scale necessary to threaten the secular bull.  But we believe it is enough to clearly identify a high at 132.85 as an objective risk parameter the bull now needs to recoup to mitigate a potentially major peak/reversal threat and reinstate the bull.

Until and unless such strength is proven and for the reasons listed above, we believe a neutral/sideline policy is the best course for the time being 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 preferred risk/reward opportunity from the bear side.  For shorter-term traders with tighter risk profiles, a bullish divergence in short-term mo needed to arrest this relapse may provide a favorable risk/reward punt from the bull side within the context of a broader peak/reversal process.



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