RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

This morning’s recovery above our short-term risk parameter defined by 30-Sep’s 112.75 minor corrective high discussed in 05-Oct’s Technical Blog confirms a bullish divergence in momentum that defines 02-Oct’s 104.90 low as the END of a textbook 5-wave Elliott sequence down from 04-Sep’s 135.45 high and start of what we believe will be a labored, choppy and challenging correction higher in the weeks ahead.  As a result of this combination of factors, traders have been advised to neutralize bearish exposure and are further advised to move to a neutral-to-cautiously-bullish policy for the period ahead.

The daily log chart above shows today’s bullish divergence in momentum that breaks Sep-Oct’s downtrend.  The Fibonacci fact that the decline from 04-Sep’s 135.45 high spanned a length within a smidge of the (105.14) 0.618 progression of Dec’19 – Jun’20’s preceding 142,45 – 94.55 plunge on a weekly log scale basis below reinforces at least an interim bullish count.  The fact that our RJO Bullish Sentiment Index of the hot Managed Money positions reportable to the CFTC remains near historical highs however suggests that any recovery attempt in the period ahead may only be corrective/consolidative as opposed to a more protracted reversal higher.

Another factor that inhibits a more aggressive bullish policy is the fact that this market remains smack in the middle of its past couple years’ lateral range where the odds of aimless whipsaw risk are considered greater, warranting a more conservative approach to risk assumption.  When the market peaked out in mid-Sep, the confluence of that mo failure, historically frothy sentiment, a textbook complete wave count and, perhaps most importantly, the market’s proximity to the upper-quarter of the two-year range presented excellent risk/reward merits for a punt from the bear side.  Here and now, while the bullish divergence in mo certainly warns of a rebound, the greater odds of whipsaw risk typical of range-center environments as well as still-frothy bullish sentiment levels do NOT add up to a preferred risk/reward situation from the bull side.

These issues considered, traders have been advised to take profits on shorts from 127.19 recommended in 14-Sep’s Trading Strategies Blog and move to a neutral-to-cautiously-constructive stance with a relapse below 104.90 required to negate this call and resurrect Sep-Oct’s decline.  In lieu of such resumed weakness, further lateral-to-higher price are expected in what could be a very choppy, volatile and challenging environment typical of range-center conditions in the weeks ahead.

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