The extent of the market’s failure yesterday below Wed’s 4.47 low defines Tue’s 4.62 high as the end of the rally from 25-Apr’s 4.16 low.  This is kind of an obvious fact at this 20/20-hindsight juncture.  But the directional jury is out on what that 4.62 high is:

• the end of another bear market correction?
• the end of just the first part of a broader bear market correction?
• or the start of a major base/reversal threat?

Regardless, the market has identified that 4.62 high as one of developing importance and an objective risk parameter from which bearish decisions can be objectively based and managed.  A problem resulting from yesterday’s relapse however is the market’s position in the middle of the recent 4.16-to-4.60-range where initiating directional exposure is a poor risk/reward bet.

The first thing that pops off the page of the daily log scale chart of the Jul contract above is the market’s rejection of the (4.60) 61.8% retrace of Feb-Apr’s 4.89 – 4.16 plunge.  We also weren’t surprised at the market’s attempt at closing the gap opened up by 01-May’s higher open as left-open gaps are rare so early in a base/reversal-threat environment (IF this is a base/reversal-threat environment).

On a broader scale shown in the weekly log scale chart of the Jul contract, the secular bear market remains intact until the market recoups 16-Feb’s 4.89 high.  Against this long-term bearish backdrop odds favor the past couple weeks’ 4.16-to-4.62 spasm a correction ahead of the resumed secular bear rather than the start of a reversal.  But could this recent rebound just be the start of a more protracted bear market correction that could chop around for weeks or months?  Sure.  After all, the market has thus far failed to sustain Apr losses below Dec’s 4.20 low amidst historically bearish sentiment levels, so it’s not hard to find technical evidence of a base/reversal threat or process.

On an active-continuation chart basis we have highlighted the 4.65-area in the weekly log scale chart above as a pivotal one.  This area was major former support that has thus far held as new key resistance followingJun’16’s collapse below it.  MINIMALLY, we believe the Jul contract has to break and sustain levels above this 4.65-area to reinforce either a larger-degree bear market correction or major reversal higher.  Conversely, the market needs to break 25-Apr’s 4.16 low to raise the odds that the recovery attempt from Aug’16’s 3.86 low is a secular bear market correction ahead of a resumption of that bear. And with the market currently sitting in the middle of this 4.65-to-4.16-range, flip a coin.

There is no question that market sentiment for wheat is at epically pessimistic levels.  We WILL look back one day at the recent 24% level in our RJO Bullish Sentiment Index (the lowest since Mar 1999) and 22%-to-12% levels in the Bullish Consensus (lowest since Jun 2001) as an “obvious” contributing factor to a major base/reversal environment.  But until the market proves longer-term strength above at least 4.65 and arguably Jun’16’s 5.24 high on a monthly log scale basis below needed to threaten or break the secular downtrend, sentiment/contrary opinion is not an applicable technical tool.

The bottom line is that the market is sitting in the middle of a range bounded by key directional triggers at4.62 and 4.16.  Against the backdrop of the secular bear market odds favor recent non-downtrending price action as being corrective ahead of at least one more plunge to at least new lows below 4.16 and possibly 3.86.  Strength above 4.65 is minimally required to threaten this call and expose a larger-degree correction or major reversal higher.  Longer-term players are advised to acknowledge either inevitable outcome with a current cautious bearish bias.  Shorter-term traders with tighter risk profiles are advised to take a trading-range approach and consider bearish exposure from the upper-quarter of the 4.16 – 4.60-range following a short-term bearish divergence in mo, a cautious bullish punt from the lower-quarter after a bullish divergence in short-term mo, and avoid directional exposure from the middle-half of this range where the risk/reward merits of such are poor.