RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

Yesterday’s recovery above Fri’s 706.9 initial counter-trend high confirms a bullish divergence in short-term momentum as detailed in the hourly chart below.  This momentum failure defines last Thur’s 666.4 day-session low as the end of a seemingly 5-wave impulsive decline from 07-Jun’s 783 high that we believe is the initial A- or 1st-Wave down of a major peak/correction/reversal process.  Typical of such major reversal processes however is a (2nd-wave or right-shoulder) corrective rebuttal to the initial counter-trend move (down, in this case) that ultimately stalls at a level below the rejected high (07-Jun’s 783.0 high) before giving way to the brunt of the reversal lower.  We believe yesterday’s bullish divergence in short-term momentum exposes exactly such a corrective rebound.

We’ve noted the 50% and 61.8% retraces of this month’s 783 – 666.4 decline at 722 and 736, respectively, that serve as approximate guidelines around which to be watchful for the requisite recovery-stemming bearish divergence in momentum needed to reject/define a more reliable high and resistance from which we can then objectively base a new bearish policy and exposure.  In lieu of such a bearish divergence in momentum, there’s no way to know the extent of suspected correction OR if this count is just plain wrong and will be negated by a recovery above 07-Jun’s 783.0 high and key long-term risk parameter.

A relapse below Mon’s 680.0 smaller-degree corrective low will render the recovery from 666.4 a 3-wave and thus corrective affair consistent with our broader bearish count and create a greater sense of urgency with respect to establishing a bearish position.

On a broader scale, last week’s failure below 26-May’s 680.4 larger-degree corrective low confirms a bearish divergence in WEEKLY momentum (below) that reinforces a major peak/reversal count calling 27-Apr’s 863.2 high in the then-prompt Jul contract the END of a massive and textbook 5-wave Elliott sequence up from May’19’s 427.5 low.  Per the now-prompt Nov contract, 07-Jun’s 783 high is the arguable end to this major wave sequence and our key risk parameter the market has to recoup to negate this count and re-expose the secular bull.  Until and unless such commensurately larger-degree strength above 783.0 is proven, longer-term commercial players are advised to first approach the current recovery attempt as a corrective selling opportunity with fabulous long-term risk/reward merits as sustained, multi-month losses below last week’s 656.0 low would ultimately be expected.

Finally, the monthly log active-continuation chart below shows the market’s gross failure to sustain Apr’s breakout above 2008’s previous all-time high around 770.  We disregard such perceived lofty heights as long as the bull continues to behave like one by sustaining trendy, impulsive price action higher.  The extent and impulsiveness of Jun’s major momentum failure below 680.4 is certainly NOT reinforcing bullish behave, but rather, the initial salvo of a major peak/reversal count until negated by a recovery above 783.

These issues considered, a neutral/sideline position is advised for the time being, keeping powder dry for what we believe will be an outstanding risk/reward opportunity from the bear side following a bearish divergence in short-term momentum needed to arrest the current intermediate-term uptrend and reject/define a more reliable high and resistance from which the risk of a new bearish policy and exposure can be objectively based and managed.

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