Posted on Jan 05, 2023, 09:08 by Dave Toth

With today’s continuation to a new low for major 5-month reversal, the 240-min chart below shows that the downtrend has left yesterday’s 4.219 high in its wake as the latest smaller-degree corrective low this market is now minimally required to recoup to even defer, let alone threaten the new secular bear trend.  This is an extraordinarily tight corrective high and short-term risk parameter relative to the magnitude of the major bear trend, but for longer-term reasons we’ll discuss below, we nonetheless are identifying 4.219 as our new short-term bear risk parameter pertinent to shorter-term traders with tighter risk profiles.

Moving out to a longer-term perspective, only a glance at the daily (above) and weekly (below) log scale charts is needed to see the confirmation of our major peak/reversal count introduced in 29Aug22’s Technical Blog.  Per the wave count labeled in the daily chart above, we believe the collapse from 13-Dec’s 6.871 high is just the 3rd-Wave of an eventual 5-wave sequence down from 23-Nov’s 7.907 high that could still mean mountains of downside potential.  To negate this major bearish count, this market is required to recover above at least 06-Dec’s 5.256 (suspected 1st-Wave) low needed to jeopardize the impulsive integrity of this count.  Per such, this 5.256 level serves as our new long-term bear risk parameter pertinent to longer-term commercial players.

A couple of reasons we may want to keep a keen eye on downside momentum around current price levels are shown in the weekly log active-continuation chart below.  This chart shows the market’s proximity to the (3.900) 50% retrace of 2020 – 2022’s entire bull market from 1.517 to 10.028 and the neighboring (3.873) 1.000 progression of Aug-Oct’s initial 10.028 – 4.750 decline taken from 23-Nov’s 8.177 corrective high.  And coincidentally per this active0-continuation basis, the market has now lost 61.8% from its 23Aug22 high of 10.028.

Very interesting Fibonacci relationships, these.  But as always, we NEVER rely on merely “derived” so-called technical levels as (in this case) support without an accompanying confirmed bullish divergence in momentum needed to, in fact, break the clear and present and major downtrend.  Herein lies the importance of even a smaller-degree corrective high and risk parameter like 4.219.  Until and unless this market can recoup at least 4.219 and preferably 5.256, the trend remains down on all scales and should not surprise by its continuance or acceleration straight away.

Finally and on an even broader scale, the monthly log active-continuation below shows the market’s return to the middle-half bowels of its historical range where we always want to beware the greater odds of aimless whipsaw risk typical of such environs.  But again, until and unless this major downtrend is even temporarily arrested by a confirmed bullish divergence in momentum, there’s no way to know that this downtrend won’t remain unabated and continue to the lower-quarter of this range.  This perspective shows an absolute ton of former historical price action in the $3.00-handle-area where we would expect the market to find some interim support.  And we will navigate such when the market confirms a bullish divergence in mo above a prior corrective high.  Until such, further losses remain expected.

In sum, a bearish policy and exposure remain advised with a recovery above 4.219 required for shorter-term traders to take profits and move to the sidelines, with commensurately larger-degree strength above 5.256 required for longer-term commercial players to follow suit.  In lieu of such strength, further and possibly steep losses remain expected in what is a new secular bear market that could span quarters or even years.

RJO Market Insights

RJO Market Insights specializes in forward-thinking analysis, focused on potential market-moving events and dominant factors driving price discovery. Detailed fundamental and technical coverage across multiple commodity sectors is combined with objectively-constructed trade recommendations to provide an industry-leading product for R.J. O’Brien’s Institutional clients, commercial hedgers, introducing brokers and individual investors free of charge. Content is distributed in both text and audio formats, with specialized service offerings provided by account type.
For more information on RJO Market Insights, contact your broker or RJO representative.