Posted on Jul 05, 2023, 07:45 by Dave Toth

Only a glance at the 240-min chart below is needed to see that there hasn’t been a lot happening in this market over the past month-and-a-half as it has remained locked within the bounds of a range spanning from 05-Jun’s 75.06 high to 12-Jun’s 66.80 low.  These levels and range boundaries define the rather obvious key flexion points the market needs to break to expose a larger-degree move in the direction of that breakout.

This chart also shows the market’s current residence pretty much smack in the middle of this range where the odds of aimless whipsaw risk remain high and the risk/reward metrics of initiating directional exposure are poor.  The potential for a bearish divergence in very short-term momentum is developing, with a failure below Mon’s 69.69 very minor corrective low required to CONFIRM this divergence and expose another run to the range’s lower-quarter that may then provide a favorable risk/reward punt from the bull side following a relapse-stemming bullish divergence in short-term mo.  Until and unless this market fails below 69.69, and for some longer-term reasons we’ll discuss below, we maintain a cautious bullish stance.

Before discussing what we believe are some developing factors that would seem to favor the bull side for at least a while, we want to jump out to a long-term monthly chart that shows this market deep, deep, deep within the middle-half bowels of its massive but lateral historical range where the odds of aimless whipsaw risk continue to be approached as HIGH.  From a long-term perspective, this is an extraordinarily challenging technical and trading predicament as the odds of being on the right side of the next $20-move are not only a coin flip, but also come with high and very impractical risk.  For long-term players then, a much more conservative approach to directional risk assumption is urged, because odds of that directional bet paying off are poor.

Against this short-term backdrop of the market remaining within the middle of the past month-and-a-half’s range AND the long-term backdrop of this market’s residence in the middle of its massive 15-YEAR lateral range, we believe there are some developing importance momentum and sentiment/contrary opinion elements that might suggest this market is becoming vulnerable to a more surprising move north.  First, on both a daily close-only basis above and weekly close-only basis below, downside momentum is dying on the vine.  And while it will take a close above at least 07-Jun’s 72.46 corrective high close to confirm a bullish divergence in daily momentum, “down here” at the extreme lower recesses of a range that has arguably imprisoned this market since early-Dec, waning downside momentum is easy to construe as an early warning of a reversal higher.

Additionally, the weekly chart below shows our RJO Bullish Sentiment Index of the hot Managed Money positions reportable to the CFTC at a SEVEN YEAR LOW of 60% following this past Fri’s update.  COMBINED with waning downside momentum and the market’s position at the extreme lower recesses of a7-MONTH range, the risk/reward metrics of a bearish policy are becoming highly questionable.  What isn’t questionable are recent lows and support ranging from 12-Jun’s 67.34 low close to that day’s 66.80 low that this market should be required to break to mitigate a call for a larger-degree correction or reversal higher and re-expose the secular bear trend.  Until and unless such weakness is proven, and especially if the market can recoup mid-Jun highs and resistance around 21-Jun’s 72.72 high and 12-Jun’s 72.46 corrective high close, we believe directional odds have shifted to the bull side.

As for the market’s upside potential, this is indeterminable against the smaller- and long-term lateral range backdrops.  But again, until mitigated by a relapse below the Jun lows and support identified above, traders are advised to position cautiously for lateral-to-higher prices in the period ahead.  These issues considered, traders are advised to move to or maintain a neutral-to-cautiously-bullish stance with a relapse below at least 69.69 required to defer this call and preferably below 66.80 to negate and re-expose the secular bear.  In lieu of such weakness, we anticipate lateral-to-higher prices in the period ahead.

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