RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

Overnight’s relapse below Mon and last week’s 3.-125-area lows and support confirms a bearish divergence in very short-term momentum.  This mo failure defines Mon’s 3.1210 high as one of developing importance and a micro risk parameter from which non-bullish decisions like long-covers and cautious bearish punts can now be objectively based and managed.  And while this momentum divergence is of a grossly insufficient SCALE to conclude anything more than another interim corrective setback, the market’s gross failure to sustain Fri/Mon’s break above THREE WEEKS of former 3.09-handle-area resistance-turned-support is just one of a number of factors that warn that today’s admittedly micro weakness could be the start of a more protracted correction or reversal lower.

Only a glance at the daily log chart above and weekly chart below is needed to see that today’s micro mo failure barely registers.  Indeed, a failure below 03-Sep’s 2.9535 corrective low remains minimally required to confirm a bearish divergence in daily momentum.  And given the magnitude of the 6-month uptrend from 19-Mar’s 1.9725 low, even a sub-2.9535 failure would only allow us to conclude the end of the uptrend from 13-Aug’s 2.7690 next larger-degree corrective low.  That 2.7690 corrective low remains intact as THE longer-term risk parameter this market needs to fail below to, in fact, break the 6-month uptrend.

HOWEVER, the combination of:

  • clearly waning upside momentum on both a daily and weekly basis amidst
  • historically frothy sentiment/contrary opinion levels not seen in at least TWO YEARS and
  • the prospect that the market has completed or is near completing a textbook 5-wave Elliott sequence up from 19-Mar’s 1.9725 low

is unique and compelling and must be acknowledged as a clear warning of a peak/correction/reversal threat that could be major in scope.  Further weakness below 2.9535 will be the next reinforcing step in the regard while commensurately larger-degree weakness below 2.7690 will confirm these suspicions and expose at least a major correction of the entire uptrend from 1.9725.

These issues considered, we believe the risk/reward merits of maintaining a bullish policy and exposure have become questionable enough to warrant moving to a neutral/sideline position.  A cautious bearish position, perhaps via an option strategy, is also advised with a recovery above 3.1210 required to negate this call, reinstate the bull and expose potentially sharp gains thereafter.  In lieu of such 3.1210 strength and especially following further weakness below 2.9535, a more protracted correction or reversal lower that could span weeks or even months should not surprise.

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