Posted on Sep 27, 2022, 06:37 by Dave Toth

In last Thur’s Technical Blog, we discussed that day’s short-term momentum failure in the Oct contract below 14-Sep’s 94.60 corrective low as one that had potential longer-term bearish implications, presenting a favorable risk/reward selling opportunity.  The analogous short-term failure point in the now-prompt Dec contract was 14-Sep’s 85.22 minor corrective low.  The hourly chart above shows Fri and yesterday’s sharp, accelerated weakness that followed, with yesterday’s break below 25-Aug’s pivotal 81.51 low confirming our major peak/reversal count and exposing protracted losses in the weeks and months ahead.

The extent and impulsiveness of the past week’s reversal obviously identifies 20-Sep’s 89.07 high as one of importance and, we believe, the start of the dramatic 3rd-Wave decline of an eventual and massive 5-wave sequence down from 16-Aug’s 91.35 high shown in the daily chart below.  This 89.07 high serves as our key long-term parameter from which longer-term commercial players can objectively base and manage bearish exposure.  From a shorter-term perspective, the tightest bear risk parameter we can identify at this juncture for shorter-term traders is a suspected minor 1st-Wave low at 85.37 from 22-Sep.  We believe what’s likely to happen, given the developing 3rd-wave-type decline that has unfolded, is an interim, smaller-degree corrective hiccup somewhere along the line before a resumption of the bear.  After such behavior, we’ll be able to trail short-term bear risk to just above the top of that corrective hiccup.

Former 81.50-to-82.50-area support, since demolished, is considered new near-term resistance ahead of further and potentially protracted losses.

The weekly log scale chart of the Dec contract below shows this week’s clear break below the past FOUR MONTHS’ support that clearly breaks the secular bull trend from 2020’s major low.  As discussed last week, the combination of waning upside momentum on a long-term scale and the extent to which the managed money community has its neck sticking out non the bull side was a precarious one for bulls that has now come home to roost.  Indeed, at a current 84% level representing a whopping 68.5K Managed Money long positions reportable to the CFTC versus only 23K shorts, or RJO Bullish Sentiment Index shows that there’s plenty of fuel for downside vulnerability as the overall market forces the capitulation of this long-and-wrong exposure.  The past two days’ plunge may be a result of this capitulation.  It will be interesting to see this Fri’s CFTC COT’s data to see if this has occurred.

The weekly (above) and monthly (below) log scale charts show this market’s massive peak/reversal construct on an active-continuation basis.  On this basis, the market has fallen over 38% from this year’s 127.32 high following a bearish divergence in weekly momentum amidst historically frothy bullish sentiment that remains pervasive and a continuing bearish factor.  The past six months’ decline also secures 2022 as the 14th year in the past 15 where prices have fallen in the months following Jun/Jul.

These issues considered, a bearish policy and exposure remain advised with a recovery above at least 85.37 and especially 89.07 required to pare or neutralize exposure.  We believe we’ll be able to tighten our short-term bear risk in the week or two ahead after the market provides a smaller-degree corrective bounce, perhaps to that resistance candidate area around 81.50-to-82.50.  In the meantime, further and possibly accelerated losses remain expected.

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