RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

JUN EURO

The market’s poke overnight above 14-Apr’s 1.0948 smaller-degree corrective high and our short-term risk parameter confirms a bullish divergence in short-term momentum.  This mo failure defines last-week’s 1.0781 low as the end of at least the portion of the major 15-month downtrend from 31-Mar’s larger-degree corrective high and key long-term risk parameter at 1.1216.  And in this shorter-term regard, this 1.0781 low is considered our new short-term risk parameter from which non-bearish decisions like short-covers and cautious bullish punts can be objectively based and managed.  But as we’ll discuss below and for some long-term range, Elliott and Fibonacci reasons, traders should be aware of the developing possibility of a base/reversal-threat environment that could be major in scope.

From a longer-term perspective shown in the daily chart above and weekly log chart below, CLEARLY, today’s bullish divergence in short-term momentum is of an insufficient scale to conclude anything more than another interim corrective hiccup within the still-unfolding secular bear market.  Indeed, the break even the portion of the major bear from 10-Feb’s 1.1504 high, the market needs to recoup 31-Mar’s 1.1216 larger-degree corrective high.  One cannot conclude a major bottom from proof of just short-term strength.  That’s akin to buying a $1.00 raffle ticket and concluding the $500 booty.  HOWEVER….

Traders should also be aware of current elements that warn of a base/reversal threat that could be major in scope until negated by a relapse below at least our short-term bull risk parameter at 1.0781:

  • the market’s proximity to the extreme lower recesses of the past 2-year range
  • amidst waning downside momentum
  • the prospect that the decline from Jan’21’s 1.238 high is a complete and massive 5-wave Elliott sequence as labeled below in which
  • the prospective 5th-Wave down from 10-Feb’s 1.1504 high came within six pips of the (1.0775) 0.618 progression of the net distance of Waves-I-thru-III (1.2368 – 1.1190), and
  • the market’s dip into the lower-quarter of its broader lateral range that has encompassed it for the past seven years shown in the monthly log chart below.

This is a compelling list of technical facts and observations that question the risk/reward metrics of a longer-term bearish policy from levels “down here”.  But again, we cannot CONCLUDE a major bottom from proof of overnight’s short-term strength.  And it wouldn’t take much for the bear to dispense with this bottoming threat by another new low below 1.0781.

In addition to the still-arguable major downtrend, another factor that is arguably absent from a base/reversal environment is market sentiment/contrary opinion.  While the Bullish Consensus (marketvane.net) shown in the monthly chart below has been eroding steadily over the past 15 months, this week’s 36% reading remains a ways away from levels that have warned of and accompanied previous major base/reversal environments.  Also, our RJO Bullish Sentiment Index of the hot Managed Money positions reportable to the CFTC has been RISING for the past four months DESPITE the bear’s continuance from around 1.13 to the recent 1.08-area lows.  It would be odd for such 4-MONTH bottom-picking to be rewarded.

These issues considered, shorter-term traders have been advised to move to a neutral/sideline policy as a result of today’s bullish divergence in short-term momentum with a relapse below 1.0781 negating this call, reinstating the secular bear and warranting a resumed, if cautious bearish policy.  We will be watchful for proof of 3-wave corrective behavior non a subsequent retest of last week’s low for a favorable risk/reward opportunity from the bull side.  Long-term institutional players remain advised to maintain a bearish policy and exposure with commensurately larger-degree strength above 1.1216 required to negate this call and warrant its cover.  Longer-term players have the option however of paring bearish exposure to more conservative levels, acknowledging and accepting whipsaw below 1.0781 in exchange for steeper nominal risk above 1.1216.

JUN BRITISH POUND

In light of the euro developments, the only change we have in our sterling analysis from our last update is trailing our short-term bear risk parameter from 30-Mar’s 1.3179 smaller-degree corrective high to 14-Apr’s 1.3145 high detailed in the 240-min chart above.  A recovery above 1.3145 would render that high an initial counter-trend high and confirm a bullish divergence in short-term momentum.  Such a bullish divergence in short-term mo would leave 13-Apr’s 1.2969 low in its wake as the possible end to a 5-wave Elliott sequence down from 13-Jan’s 1.3745 high and contribute to a broader base/reversal count.  Commensurately larger-degree strength above 23-Mar’s 1.3294 larger-degree corrective high and key long-term risk parameter remains required however to confirm such a count and expose a major reversal higher.

On a broader weekly basis below, it’s not hard to see the major downtrend as the dominant technical factor that requires a recovery above at least 1.3145 and preferably 1.3294 to threaten and then negate.  In lieu of such strength, bearish policies and exposure remain advised with a recovery above 1.3145 required for shorter-term traders to move to the sidelines and commensurately larger-degree strength above 1.3294 for longer-term institutional players to follow suit.  In lieu of such strength, further and possibly accelerated losses remain anticipated.

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