RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

Posted on Jan 23, 2023, 07:11 by Dave Toth

In Fri morning’s Technical Webcast we discussed Thur’s negation of a bearish divergence in short-term momentum and the Mar contract’s resumption of not only this month’s uptrend from 05-Jan’s 2.8500 low, but also a broader recovery from its 09-Dec low at 2.7047.  This strength allowed us to reaffirm Thur’s 3.1347 low as the latest smaller-degree corrective low and new short-term risk parameter from which traders can objectively rebase and manage the risk of a resumed or continued bullish policy.  Later in the day on Fri and overnight, this recovery has broken 27-Dec’s key 3.3543 initial counter-trend high on an active-continuation basis that confirms a bullish divergence in WEEKLY momentum, confirming a more protracted correction of reversal higher.

On a broader scale, by taking out 27-Dec’s 3.3543 high on a daily active-continuation basis above and 30-Dec’s 3.3007 close on a weekly log close-only basis below, the market has confirmed a bullish divergence in WEEKLY momentum.  This larger-degree display of strength reaffirms the break of AT LEAST the downtrend from 04-Nov’s 3.95565 high and possibly the downtrend from 18-Oct’s 4.1535 high, exposing a larger-degree correction or reversal higher.  This strength confirms 05-Jan’s 2.9200 intra-day low and 06-Jan’s 3.0112 weekly low close as THE KEY long-term risk parameters from which longer-term commercial players can objectively base non-bearish decisions like short-covers and cautious bullish punts.

These longer-term bull risk parameters are important because given the magnitude of Jun-Dec’22’s $1.8423,  40% decline, the past month-and-a-half’s recovery attempt falls well within the bounds of a mere correction within a new secular bear market.  Per such a broader bear market correction prospect, we’ve noted a pair of Fibonacci progression and retracement relationships that cut across in the 3.40-to-3.50-area in the daily active-continuation chart above.  These levels and this area are NOT considered resistance as these Fib levels are merely “derived” by other data points and, like every other derived and so-called “technical level”, unreliable and virtually useless in the absence of an accompanying confirmed bearish divergence in momentum needed to, in fact, break the clear and present and developing uptrend.  We only mention these levels because IF the recovery from the early-Dec low IS a correction within a broader bear market, this 3.48-to-3.50-area would be one where we’d expect the prospective C-Wave of the correction from 05-Jan’s 2.9200 low to cap out.  Until and unless reinforced by a recovery-stemming bearish divergence in momentum, there’s no way to know the rally from 2.9200 isn’t the dramatic 3rd-Wave of a broader reversal higher that would/could expose explosive, sustain gains straight away to 4.0000+ levels.

On an even broader scale however, the monthly log active-continuation chart below shows the technical elements that maintain a peak/reversal threat that could be massive in scope:

  • the market’s gross failure to sustain last summer’s break above 2008’s previous all-time high of 4.1586 from 2008
  • a bearish divergence in monthly momentum
  • historically extreme sentiment/contrary opinion levels not seen since at least 2018 and, in the case of the Bullish Consensus (marketvane.net), since 2008, and
  • a textbook complete and massive 5-wave Elliott sequence dating from Apr’20’s 0.6724 low.

To negate this major peak/reversal count, the bull, quite simply, needs to take out 16Jun22’s 4.6070 orthodox high.  Until and unless such strength is proven, recovery attempts, even “protracted” recoveries like that that might have been exposed on Fri above 3.3543, fall well within the bounds of mere corrections and ultimate selling opportunities for longer-term commercial players.

These issues considered, all previously advised bearish policy and exposure for long-term commercial players have been threatened enough to warrant moving to a neutral-to-cautiously-bullish policy with a failure below 3.1347 required to move back to at least a neutral stance.  A cautious bullish policy remains advised for shorter-term traders with tighter risk profiles with a failure below 3.1347 required to negate this call and warrant its cover.  In lieu of a failure below at least 3.1347, further and possibly accelerated gains are expected.  And we will keep a keen eye on any developing momentum failure threat from the 3.48-to-3.50-area to warn of this correction’s end or upper boundary.

Bart Smith