RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

Posted on Sep 06, 2022, 08:34 by Dave Toth

In 29-Aug’s Technical Blog, following that day’s break above 24-Aug’s 6.71 high, we identified 25-Aug’s 6.49 low as the latest smaller-degree corrective low this market is required to sustain gains above to maintain a more immediate bullish count, and as such, as our new short-term bull risk parameter.  A week on, we’re reiterating the importance of this 6.49 level, the failure below which will confirm a bearish divergence in short-term momentum and define 29-Aug’s 6.84 high as one of developing importance and possibly the end of an extensive (2nd-Wave) correction from 22-Jul’s 5.63 within a major, multi-month PEAK/reversal process.

As always, we cannot confirm a larger-degree reversal from roof of just smaller-degree weakness.  And indeed, a slip below 6.49 will still leave this market ABOVE key former resistance-turned-support from the 6.43-to-6.37-area as detailed in the hourly chart below.  Commensurately larger-degree weakness below the 6.22-to-6.05-range would remain required to really reinforce this major peak/reversal count.  With ancillary Fibonacci and contrary opinion evidence reinforcing this peak/reversal count however, traders are urged to beware this market’s ability, or not, to sustain levels above 6.49 and act accordingly deftly.

From a longer-term perspective, we always talk about the prospect for a “more extensive”, in terms of both price and time, corrective rebuttal to an initial counter-trend decline following a massive bull trend such as that that has unfolded over the past two years.  We generally refer to such a more extensive correction as a roughly 61.8% retrace of the initial counter-trend break, with the all-important accompanying confirmed bearish divergence in momentum required to arrest the rebound and reject/define a more reliable high from which non-bullish decisions like long-covers and bearish punts can then be objectively based and managed.

As stated above, a failure below 6.49 will be of an INsufficient scale to conclude a dramatic 3rd-Wave resumption of May-Jul’s 1st-wave decline to levels well below 5.62.  But it would be enough to reject/define a more reliable level, perhaps like last week’s 6.84 high, from which non-bullish decisions like long-covers, bearish punts and bear hedges can be objectively based and managed, especially given that that high was just 4-cents away from the (6.80) 61.8% retrace of May-Jul’s 7.66 – 5.62 decline.

On a broader scale, 6.05 is 18-Aug’s next larger-degree corrective low while 6.22 is 29-Jul’s prospective 1st-Wave of an impulsive 5-wave sequence up from 22-Jul’s 5.62 low close.  A correction within a broader uptrend should not even come close to this 6.22-to-6.05-area, let alone break it.  A relapse into this range will reinforce our peak/reversal count while a break below it will confirm the reversal and expose long-term losses thereafter.

Contributing to this peak/reversal count that contends that Jul-Aug’s recovery attempt is a 2nd-Wave correction is the sentiment/contrary opinion fact that the Managed Money community has, not surprisingly, swarmed back to the bull side on the recent recovery.  Returning to a frothy high of 85% reflecting 269K long positions to just 48K shorts, our RJO Bullish Sentiment Index would be complicit in this peak/reversal count if/when this market fails below levels like 6.49 and especially the 6.22-to-6.05-range that would jeopardize the impulsive integrity of an alternate bullish count.

These issues considered, a cautious bullish policy and exposure remain advised, but initial weakness below 6.49 will threaten this call enough for shorter-term traders to reverse into cautious bearish exposure and for longer-term commercial players to at least pare bullish exposure to more conservative levels.  Subsequent weakness below former resistance-turned-support around 6.35 would confirm the next level of weakness while a break below 6.05 will confirm it and warrant a reversal into a bearish policy and exposure by longer-term players.  In lieu of at least sub-6.49 weakness, further gains should not surprise.

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