The market’s failure today to sustain Dec/Jan losses below 04-Dec’s 3.61 corrective high and our key long-term risk parameter confirms 12-Jan’s 3.45 low as the END of the 6-month, 5-wave decline from 11Jul17’s 4.26 high as labeled in the daily log scale chart below. We’ve discussed the importance of this larger-degree corrective high and risk parameter since mid-Dec’s resumed downtrend left it in its wake, and the market’s recovery above it, in fact, breaks the Jul-Jan downtrend and exposes the new longer-term trend as up.

Fri’s 3,54 smaller-degree corrective low serves as a short-term risk parameter this market is now minimally required to fail below to even defer, let alone threaten a new bullish count, but 12-Jan’s 3.45 low serves as this market’s single most important technical level currently. For until and unless the market relapses below 3.45, the market’s upside correction or base/reversal potential is indeterminable and potentially extensive. In this regard that 3.45 low serves as our new long-term risk parameter from which a new bullish policy and exposure can be objectively based and managed.
Of course, given the magnitude of Jul-Jan’s decline, it’s grossly premature to conclude a major reversal higher as opposed to “just” a larger-degree correction. Indeed, the market has yet to retrace even a Fibonacci minimum 23.6% of the 4.26 – 3.45 decline. HOWEVER…
Now that the market has, in fact, confirmed a bullish divergence in momentum of a scale sufficient to break the 6-month downtrend, we believe the following ancillary evidence presents an extraordinarily compelling and unique risk/reward case for a reversal higher that could be major in scope:

  • the market’s confirmed rejection (once again) of the lower-quarter of the past 3-YEAR lateral range shown in the weekly chart above amidst
  • historically bearish levels in our RJO Bullish Sentiment Index that have warned of and accompanied EVERY significant recovery over the past three years
  • a bullish divergence in WEEKLY momentum
  • and arguably complete 5-wave Elliott sequence down from 2012’s 8.49 all-time high to Aug’16’s 3.15 low AND…


  • the Fibonacci progression fact that the 2012 – 2016 secular bear market spanned an identical length (i.e. 1.000 prog) to BOTH the 2008-09 and 1996 – 2000 secular declines.

Following Sep’09’s low and a basing process that began in Dec’08, the market “only” took another nine of ten months of basing process before exploding high. We’re currently about 17 months removed from 31Aug16’s 3.15 low.

Following Aug 2000’s 1.85 low and a basing process that arguably began TWO YEARS earlier in Sep’98, the new secular bull didn’t really start tearing it up until 4Q06, a whopping SIX YEARS after the low. But within that 6–to-8-year basing process the market did retrace 61.8% of the 1996 – 2000 bear between the 2000 low and 2Q04. In the for-what-it’s-worth department, a similar 61.8% retrace of 2012 – 2016’s 8.49 – 3.15 bear on a monthly log scale projects to the 5.80-area.

Of course, at such an early, early stage of this proposed “major” base/reversal-threat environment, it’s premature and borderline ridiculous to spout off about a rally to “this level” or “that level” unless you have a Presidential Twitter account, especially with at least a couple months to go before speculation on spring planting risk premium raises its ugly head. What is NOT premature to conclude at all is 1) the importance of 12-Jan’s 3.45 low as an objective risk parameter for ANY bullish policy and 2) the absolute prospect that the past couple weeks’ recovery could morph into a move to….pick a level….4.00….4.50….5.81 without the market relapsing 16-cents from its current 3.61 level to below our 3.45 risk parameter.

These issues considered, all previously recommended bearish policy has been nullified and bearish exposure advised to be covered in favor of a new bullish policy calling for potentially extensive, multi-month or multi-quarter gains without the market failing below 3.45. In recent Technical and Trading Strategy Blogs we’ve recommended cautious bullish exposure. Traders are advised to raise the aggressive of this bullish policy at-the-market and on setback attempts to 3.57 OB following today’s break above 3.61. Shorter-term traders with tighter risk profiles can limit risk with tight protective sell-stops just below 3.54. Commensurately larger-degree weakness below 3.45 however is required to negate this count entirely and warrant defensive measure by long-term players.

End-users are urged to have bull hedges in place until and unless the market fails below 3.45. Producers, on the other hand, can are or neutralize bear hedge exposure until the market relapses below 3.45. In lieu of weakness below at least 3.54 and preferably 3.45, further and possibly accelerated gains should not surprise with the 3,70-area the next pertinent upside threshold.


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.
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