RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

Posted on Oct 05, 2022, 07:44 by Dave Toth

In yesterday’s Technical Webcast we discussed the developing potential for a bullish divergence in very short-term momentum.  The 240-min chart below shows overnight’s break above 28-Sep’s 89.34 minor corrective high that confirms this divergence and defines Mon’s 82.70 low as one of developing importance and a mini risk parameter from which very short-term traders with tight risk profiles can objectively base non-bearish decisions like short-covers and cautious bullish punts as, clearly, a relapse below 82.70 will nullify the divergence and reinstate the past month-and-a-half’s meltdown.

This 24-min chart also shows this morning’s relapse, defining today’s 90.52 high as also one of importance on a very short-term basis.  A recovery above 90.52 will reinforce this base/correction/reversal threat and expose a larger-degree correction of Aug-Oct’s 119.59 – 82.70 decline.  Per such and for traders with slightly larger-degree risk profiles, today’s 90.52 high serves as a short-term risk parameter from which a still-bearish policy and exposure can be objectively rebased and managed.  In effect, we believe the market has identified 90.52 and 82.70 as the short-term but key flexion points around which short-term traders with tighter risk profiles can objectively toggle directional biases and exposure.

From a longer-term perspective, only a glance at the daily (above) and weekly (below) log scale charts is needed to see that the magnitude of Aug-Oct’s decline is such that overnight’s bullish divergence in very short-term momentum is of a grossly insufficient scale to conclude anything more than another iterative corrective hiccup within the long-term bear.  Our reason for drilling down to such a conservative risk management approach “down here” was and remains solely due to the market’s proximity to the extreme lower recesses of the past quarter’s range bounded by 15-Jul’s 82.54 low.  A mini relapse below 82.70 will negate this bullish divergence in very short-term mo and leave only Jul’s 82.54 low between this market and the abyss, as the weekly chart shows NO levels of any technical merit below 82.54 shy of 2020’s 48.35 low.  This doesn’t mean we’re forecasting a move to the 48-handle-area.  But it certainly does mean that the market’s downside potential below 82.54 is indeterminable and potentially severe, especially given the sentiment/contrary opinion fact that our RJO Bullish Sentiment Index remains tremendously bullishly-skewed at 87% INTO TO THE TEETH OF A MAJOR BEAR.

Indeed, reflecting a whopping 49K Managed Money long positions reportable to the CFTC versus a piddly 7.5K shorts, this stubbornly long-&-wrong exposure remains as tremendous fuel for downside vulnerability as the overall market forces its capitulation that will exacerbate the collapse, especially if/when the market breaks 82.54.

These issues considered, a bearish policy and exposure remain advised for longer-term commercial players with a recovery above 90.52 required to pare bearish exposure to more conservative levels.  Shorter-term traders with tighter risk profiles have the option of playing it either way, with a recovery above 90.52 reinforcing a base/correction/recovery count and a relapse below 82.70 re-exposing the major bear.  Short-term traders are advised to toggle directional biases and exposure around these two levels.

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