RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

MAR SOYBEANS

A couple key technical tenets of ours are that:

  1. one cannot conclude a larger-degree peak/correction/reversal environment from proof of just short-term weakness and
  2. the market must satisfy our three key reversal requirements of:
    1. a confirmed bearish divergence in momentum mon a scale sufficient to threaten the broader trend
    2. proof of trendy, impulsive behavior on that initial counter-trend move down and, most importantly,
    3. proof of labored, corrective 3-wave behavior on a subsequent rebound attempt.

Given the magnitude of the major bull trend, none of these requirements are anywhere close to being met on a scale sufficient to bet that a major top is in.  We always discuss how a trend, just like a freight train, typically slows down before it reverses.  It’s hard not to find almost any major peak (or bottom) in beans or any other market where the ultimate peak or end of the bull didn’t have some volatile corrective/consolidative bull flag or 4th-wave before the final exhaustive resumption of the bull that the market did not sustain.  For reasons discussed below, we believe that the period of trending, easy money may be coming to an end ahead of a corrective/consolidative period that could be very volatile and challenging.

Starting with a very short-term hourly chart of Globex day-session prices below, this chart does not yet reflect overnight’s prices that show the market down 30-cents and trading around 13.55.  Yesterday’s slip below 13-Jan’s 14.03 very, very minor corrective low confirms a bearish divergence in momentum.  OBVIOUSLY, this mo failure is of a scale grossly insufficient to conclude anything more than 14-Jan’s 14.36 high as the end of the rally from 07-Jan’s 13.42 next larger-degree corrective low and our short-term risk parameter.  But this micro mo failure IS enough to conclude last week’s 14.36 high as a micro risk parameter from which non-bullish decisions like long-covers and cautious bearish punts can be objectively based and managed by short-term traders with tighter risk profiles.  14.36 is the obvious risk parameter this market now needs to recoup to chalk up the relapse attempt as merely a correction within the still-unfolding massive secular bull trend.

Commensurately larger-degree weakness below at least 07-Jan’s 13.42 corrective low and short-term risk parameter remains required to take the next objective step in a peak/correction/reversal count.  But while we’re making the distinction of SCALE as a key technical consideration in navigating another common correction-vs-reversal-threat environment, there is some very compelling ancillary evidence that we believe warns that the past few days’ smaller-degree slippage may be the start of at least a more protracted correction lower, and possibly a major reversal.

Moving back to a daily chart above, a break below 07-Jan’s 13.42 Globex day-session corrective low remains required to confirm a bearish divergence in momentum needed to break even Dec-Jan’s 11.48 – 14.37-portion of the secular bull, let alone the massive uptrend from last Apr’s 8.24 low in the Mar contract.  Herein lies our rationale for that 13.42 level as a short-term bull risk parameter.  HOWEVER….

When we expand the daily log scale chart of the Mar contract all the way back to 24-Apr’s 8.25 low, we find it extremely compelling that:

  1. the prospect that this entire rally may be a COMPLETE 5-wave Elliott sequence as labeled with
  2. the prospective 5th-Wave from 02-Dec’s 11.43 low spanning a length that’s within 4-cents of the (14.41) 0.618 progression of the net distance of Waves-1-thru-3 (8.25 – 12.02) that preceded it.

COMBINED with historically frothy bullish sentiment unseen since that that warned of and accompanied 2012’s major peak/reversal, all traders are urged to raise their awareness to what we believe are improving odds for a larger-degree correction in the period immediately ahead.

Indeed and understandably, the weekly log chart below shows the historic heights to which the sentiment/contrary opinion indicators have reached.  It’s hard to look back at ANY major peak/reversal environment in ANY market where such emotional frothiness didn’t exist.  Again and TO BE SURE, the amount of slippage we’ve seen this week is grossly insufficient to conclude a major peak/correction count.  This slippage is far from the evidence necessary for longer-term commercial players to pitch their bullish exposure and policy as a goodly amount of peaking behavior in the form of perhaps weeks of an initial move down and additional weeks of a subsequent corrective rebuttal are likely and required to identify a broader high on such a scale.  For the reasons specified above however, some “course management”, even by longer-term players, may be in order, acknowledging and accepting whipsaw risk above last week’s 14.36 high and micro risk parameter in exchange for deeper nominal risk below 13.42 or even our long-term risk parameter defined by 23-Nov’s 11.95-area of former resistance-turned-support.

These issues considered, traders are advised to pare or neutralize bullish exposure at-the-market commensurate with their personal risk profiles with a recovery above 14.36 required to negate this call, reinstate the bull and expose potentially steep gains thereafter.  In lieu of such 14.36+ strength and especially after a break below 13.42, we believe odds favor at least a more protracted correction lower that might be relatively shallow but nominally deep, potentially spanning weeks.

MAR SOYBEAN MEAL

The technical construct for meal is virtually identical to that detailed above in beans after yesterday’s micro mo failure below 456.2 detailed in the hourly chart below that leaves 12-Jan’s 468.7 high in its wake as one of developing importance and a micro risk parameter this market is now required to recoup to nullify this mo failure and reinstate the bull.  In lieu of such 468.7+ renewed strength, further lateral-to-lower correction is expected with 07-Jan’s Globex day-session corrective low at 430.5 the next key downside threshold and short-term bull risk parameter.

The daily chart of meal shows the developing potential for a bearish divergence in momentum that will be confirmed on a failure below 430.5.  But what’s particularly compelling about the daily log chart above and weekly log chart below is the combination of:

  • an arguably complete 5-wave Elliott sequence in which
  • the suspected 5th-Wave from 11-Dec’s 375.8 low spanned a length within four bucks of the (467.9) 0.618 progression of Waves-1-thru-3 (281.5 – 401.4)
  • amidst historically frothy bullish sentiment not seen since Jun’18 in our RJO BSI and since 2012 in the Bullish Consensus (marketvane.net).

This is very compelling evidence that serves as a warning that this week’s admittedly very minor weakness could morph into a more protracted correction or reversal lower until and unless mitigated by a recovery above 468.7.  These issues considered, traders are advised to neutralize or pare bullish exposure commensurate with their personal risk profiles and acknowledge and accept whipsaw risk back above 468.7 in exchange for deeper nominal risk below 430.5 or even 08-Dec’s major corrective low and long-term risk parameter at 377.8.  

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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