The market’s break overnight below Tue’s 4.0415 initial counter-trend low reaffirms our peak/correction/reversal count introduced in Tue’s Technical Blog and leaves Tue’s 4.2275 high in its wake as the latest smaller-degree corrective high it’s now required to recover above to render the sell-off attempt from 25-Feb’s 4.3755 high another 3-wave and thus corrective affair that would then be expected to re-expose the secular bull.  In this regard, this 4.2275 level becomes our new short-term risk parameter from which non-bullish decisions like long-covers and cautious bearish punts can be objectively rebased and managed.  Needless to say, a relapse below today’s 3.9300 low will reinforce this peak/correction/reversal count and expose potentially sharp losses thereafter.

From a long-term standpoint, the magnitude of the secular bull trend requires commensurately larger-degree weakness below at least 28-Jan’s 3.4910 next larger-degree corrective low needed to, in fact, break the trend.  With the possible development of today’s 3.9300 low and pretty much exact 50% retrace of Jan-Feb’s 3.4910 – 4.3755-portion of the bull, there are NO levels of any technical merit between spot and at least former 3.73-handle-area resistance from early-Jan.  This is due to the extent and uninterrupted nature of Feb’s steep continuation of the bull.  And merely “derived” levels like trend lines, Bollinger Bands, imokus and the ever-useless moving averages are of absolutely no use in identifying reliable support levels without an accompanying confirmed bullish divergence in momentum.

As recently discussed then, even for longer-term commercial players, risking an entire bullish position to 3.4910 is rather impractical.  Per such, we’ve advised paring bullish exposure on the admittedly short-term mo failure and exchange whipsaw risk back above (now) 4.2275 for deeper nominal risk below 3.4910.  And as a result of today’s bounce, more bullish paring can be done objectively on resumed weakness below today’s 3.9300 low.

Today’s reaffirmation of at least short-to-intermediate-term weakness is also important because it renders sentiment/contrary opinion an applicable technical tool.  And it’s easy to see the historically frothy levels both our sentiment indicators have reached that are very typical of major peak/reversal-threat environments.  The prospect that Jan-Feb’s portion of the rally might be the completing wave to a massive 5-wave sequence up from Mar’20’s 1.9725 low is also clear and contributes to this peak/reversal threat.

Finally and from an even longer-term perspective shown in the monthly log chart below, it is absolutely imperative for the market to resurrect and sustain trendy, impulsive behavior higher in order to maintain the risk/reward merits of a bullish policy “way up here” at the extreme upper recesses of its all-time historical range.  If there’s a time and place to be leery of a peak/reversal threat that could be major in scope, it is here and now.  The Fibonacci fact that the entire 5-year rally from Jan’16’s 1.9355 low is virtually 61.8% of the span (i.e. 0.618 progression) of 2008 – 2011’s preceding 1.2550 – 4.65 rally is an interesting adjunct to the peak/reversal-threat factors discussed above.

These issues considered, traders have been advised to move to a neutral-to-cautiously-bearish policy with a recovery above 4.2275 now minimally required to threaten this call and re-expose the secular bull.  In lieu of such strength, further and possibly accelerated losses should not surprise with a relapse below 3.9300 reinforcing this count.  Longer-term commercial players holding on to bullish exposure would be advised to pare or neutralize remaining exposure on a failure below 3.9300.  The only remaining objective bull risk below 3.9300 is 3.4910.

RJO Market Insights

RJO Market Insights specializes in forward-thinking analysis, focused on potential market-moving events and dominant factors driving price discovery. Detailed fundamental and technical coverage across multiple commodity sectors is combined with objectively-constructed trade recommendations to provide an industry-leading product for R.J. O’Brien’s Institutional clients, commercial hedgers, introducing brokers and individual investors free of charge. Content is distributed in both text and audio formats, with specialized service offerings provided by account type.
For more information on RJO Market Insights, contact your broker or RJO representative.