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Corn, Ethanol Reaffirm Uptrends, Define New Bull Risk

Posted 06/13/2019 10:57AM CT | RJO Market Insights

DEC CORN

Corn Dec '19 60 Min Chart

Today’s break above 30-May’s 4.52 high reinstates the past month’s impressive uptrend and verifies Tue’s 4.27 low discussed in yesterday’s Technical Blog as the end of the corrective sell-off attempt from that 4.52 high and key risk parameter from which a broader bullish count can be objectively based and managed.  This 4.27 low is THE MINIMUM level this market needs to break to confirm a bearish divergence in daily momentum, break the uptrend from 13-May’s 3.64 low and expose a larger-degree correction lower. In lieu of such sub-4.27 weakness, the major uptrend remains intact ahead of further and possibly accelerated gains straight away.

On a very, very short-term basis, yesterday afternoon’s 4.47 low serves as the latest and absolute smallest corrective low that can be used as a micro risk parameter for scalpers.  But against the backdrop of the major uptrend a failure below 4.47 would be of too minor a scale to conclude anything more than a minor corrective hiccup within the broader bull.

Corn Dec '19 Daily Chart

As for the market’s upside potential from here, it has to be approached as indeterminable and potentially extreme until and unless the market fails below 4.27.  The market’s position at the upper-quarter of the 4-1/2-YEAR range certainly cannot be ignored as a huge resistance candidate, but only an accompanying confirmed bearish divergence in momentum will acknowledge this resistance and developing peak/reversal threat.  And this, quite simply, requires a failure below 4.27.

In the weekly chart below we’ve also noted the (4.45) 1.000 progression of Aug’16 – Jul’17’s preceding 3.15 – 4.17-rally from 13May19’s 3.43 low.  But like every other merely derived technical level, this means little without an accompanying bearish divergence in mo needed to break the clear and present uptrend, bringing us back to Tue’s 4.27 low, key risk parameter and this market’s single most important technical level currently.

The weekly chart below also shows a sharp and fully expected recovery in the sentiment/contrary opinion indicators.  Traders are reminded however that sentiment is not an applicable technical tool in the absence of, in this case, a confirmed BEARISH divergence in momentum needed to break the clear and present uptrend.  Here again, Tue’s 4.27 low is the key.

Ethanol Weekly Chart

 

From an even longer-term perspective, traders are reminded of the price action from Oct’14’s 3.18 low that continues to provide EXACTLY the same evidence and warning of a major base/reversal count as that that followed Sep 1998’s 1.96 low.  This similarly has formed the basis of our long-term base/reversal count since Oct’16’s bullish divergence in weekly momentum identified Aug’16’s 3.15 low as the 5th-wave END of the secular bear market from Aug’12’s 8.49 all-time high.

But looking at years 2002-to-2005 that included some significant upwards spikes, the major reversal didn’t finally take hold until 2006, EIGHT YEARS after the start of that slowdown/base/reversal-threat process.  Will 2019 be the year of THE reversal higher like 2006?  Of course that remains to be seen.  But the better question is, do you want to bet against such a reversal higher that could drive prices relentlessly to 5.00+ levels?  And the answer to this is an easy, no.  Because the market has identified a now-relatively-tight but key risk parameter at 4.27 from which to position for ANY amount of upside the market has in store.

In sum, a full and aggressive bullish policy and exposure remain advised with a failure below 4.27 required to negate this specific call and warrant its cover ahead of what we’d then suspect is a lager-degree correction of the rally from 13-May’s 3.64 low.  In lieu of such sub-4.27 weakness, further and possibly accelerated gains should not surprise to levels indeterminately higher.

Corn Monthly Chart

 

JUL ETHANOL

While the market hasn’t closed yet, today’s poke above 30-May’s 1.542 high close is consistent with our broader bullish count that leaves Mon’s 1.473 low in its wake as the latest corrective low the market is now minimally required to fail below to confirm a bearish divergence in momentum, stem what would appear to be a 5-wave Elliott sequence up from 09-May’s 1.311 low and expose at least an interim, intermediate-term correction lower.  Per such that 1.473 low serves as our new key risk parameter from which a longer-term bullish policy and exposure can be objectively rebased and managed.

Ethanol Jul '19 Daily Chart

 

Ethanol Weekly Chart

From a long-term perspective and especially on a monthly close-only basis below, the extent and impulsiveness of this year’s rally following the market’s gross failure to sustain 3Q18 and 4Q18 losses below HUGE former support-turned-resistance from the 1.35-to-1.38-area warns of a base/reversal environment that could be major in scope, potentially reversing the secular bear market from 2011’s 2.835 monthly high.

These issues considered, a bullish policy remains advised for longer-term players with a failure below 1.473 required to negate this specific call and warrant its cover.  in lieu of such weakness further and possibly accelerated gains remain expected.  Shorter-term traders whipsawed out of bullish exposure following early-Jun’s bearish divergence in short-term mo are advised to first approach setback attempts to 1.530 OB as corrective buying opportunities with a failure below 1.473 required to negate this call and warrant its cover.

Ethanol Monthly Chart

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