RJO FuturesCast

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This week’s continued rally above 22-Aug’s 1.1645 high and also 08-Aug’s 1.1662 corrective high and short-term risk parameter reinforces the broader base/reversal count we introduced in last Tue’s Technical Blog following an admittedly micro mo failure above 1.1462.  This continued strength leaves Thur’s 1.1548 low in its wake as the latest smaller-degree corrective low this market is now required to sustain gains above to maintain a more immediate bullish count.  Its failure to do so will confirm a countering bearish divergence in short-term mo, stem the rally and expose what we’d suspect is just a (B- or 2nd-Wave) correction of the current rebound and a much-preferred risk/reward buying opportunity (as opposed to “chasing” this initial counter-trend rally higher).

Euro Sep '18 240 Chart

Euro Daily Chart

Reiterating, our major base/reversal count is predicated on:

  • an arguably textbook 5-wave and thus complete Elliott sequence down from 16-Feb’s 1.2580 high to 15-Aug’s 1.1327 low as labeled in the daily log chart above
  • a historically bearish 22% reading in our RJO Bullish Sentiment Index of the hot Managed Money positions reportable to the CFTC
  • waning downside momentum on a WEEKLY basis below (confirmed on a weekly close above 1.1723)
  • the market’s rejection of the exact (1.1411) 50% retrace of the entire Dec’16 – Jan’18 rally from 1.0453 to 1.2456 on a weekly close-only basis of the cash Euro.

While the extent and impulsiveness of the past couple weeks’ rally are impressive however, they only satisfy two of our three key reversal requirements.  Proof of labored, 3-wave corrective behavior on a subsequent relapse attempt has yet to be proven.  And such a (B- or 2nd-Wave) corrective rebuttal to an initial counter-trend rally is typical of broader base/correction/reversal PROCESSES as the entirety of all the fundamental, technical and emotional factors that drove this market south SIX MONTHS isn’t likely to evaporate quickly, but rather over time.  Mar’s 1.2166 – 1.2554 (2nd-Wave) rebuttal to Feb’s 1.2580 – 1.2166 initial counter-trend break is an excellent example of such typical reversal-process behavior.

We can’t and won’t argue with the clear and present intermediate-term uptrend that should not surprise by its continuance or acceleration.  But neither should an intermediate-term mo failure below a level like 1.1548 surprise.  Indeed, it should be considered an opportunity to establish a preferred and much more favorable risk/reward bullish position from, say, the lower-1.15-handle or upper-1.14-handle.

Euro Weekly Chart

Finally, traders are reminded of our even longer-term count that contends Feb-Aug’s relapse is part of a correction within a multi-year BASE/reversal count that warns of levels potentially well above this year’s 1.2580 high in the quarters and years ahead after Jul’17’s rally, in fact, broke the secular bear trend in the Euro.  Consistent with such a bullish count, former 1.15-handle-area resistance from Aug’15 until Jul’17’s breakout has thus far held as new support.

It might be a stretch to conclude at this juncture that 15-Aug’s 1.1327 low COMPLETED the suspected correction down from 1.2580 and that the Euro is now poised to resume 2017’s rally.  But the extent and impulsiveness of the past couple weeks’ recovery is impressive and warns of AT LEAST a more protracted correction of Feb-Aug’s 1.2580 – 1.1327 decline that could easily retrace 50% (to 1.1937) or 61.8% (to 1.2086) of that decline in the weeks and months ahead.

These issues considered, a neutral/sideline policy remains advised as we believe establishing bullish exposure “up here” presents a poor risk/reward bet.  Rather, traders are advised to wait for a bearish divergence in short-term mo that might actually present a better risk/reward scalp from the bear side ahead of a preferred risk/reward buying opportunity following a setback to the 1.1550-to-1.1450-range.

Euro Monthly Chart

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