RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

In just yesterday’s Technical Webcast, we discussed not the reaffirmation of a broader peak/reversal threat, but also the prospect of an eventual (B- or 2nd-Wave) corrective rebuttal to the past week’s initial counter-trend break within a broader peak/reversal threat process.  Today’s bullish divergence in short-term momentum above Mon’s 1.9742 corrective high and our short-term risk parameter leaves yesterday’s 1.8709 low in its wake as the end of a textbook 5-wave Elliott sequence down from 15-Mar’s 2.1700 high and start of what we suspect is a 3-wave B- or 2nd-Wave correction of last week’s slide that, if correct, we believe will offer a preferred and very favorable risk/reward opportunity from the bear side.

To satisfy this key third of our three reversal requirements however, this recovery from 1.8709 has to 1) unfold in a labored, 3-wave manner and 2) be arrested by a countering bearish divergence in short-term momentum from some level shy of 15-Mar’s obviously key 2.1700 high and long-term risk parameter.  We’ve listed the 50% and 61.8% retraces off the 2.1700 – 1.8709 decline at 2.0149 and 2.0505, respectively, as sort of “guidelines” around which to watch for a recovery-stemming bearish divergence in momentum that would only add to the favorable risk/reward elements of a new bearish policy.  But in the end, it will only be from a confirmed bearish divergence in momentum that the market will reject/define a more reliable high and resistance from which the risk of a bearish play can only then be objectively based and managed.  In the absence of these requirements being met, there’s really no way but Elliott “theory” (and we won’t rely on that) to know that mid-Mar’s setback to 1.8709 didn’t COMPLETE a correction ahead of the major bull trend’s resumption.

From a broader perspective, the combination of:

  • a confirmed bearish divergence in momentum amidst
  • historically frothy bullish sentiment and
  • the likelihood of a complete and major 5-wave Elliott sequence up

is the technical trifecta typical of virtually all major peak/reversal environments.  If this setup is wrong al the bull has to do is recover above 15-Mar’s 2.1700 high to conclude the setback to 1.8709 is another correction and to reinstate the major bull.  Longer-term commercial players are OK to act on this premise currently, but the assumed risk would be to that 2.1700 high.  As a result of the shorter-term price gyrations detailed above, let alone our three reversal requirements (mo failure, 5-wave impulsive behavior down & 3-wave corrective behavior back up), we believe we can fine-tune a risk/reward selling opportunity on the current recovery attempt to a preferred and more acute price and time.

These issues considered and while we anticipate lateral-to-higher prices in the week or two ahead, a neutral/sideline position is advised for the time being to keep powder dry for what we  believe will be an acute risk/reward opportunity from the bear side in the week or two ahead.  Needless to say, a relapse below 1.8709 will reinforce this reversal and expose potentially sharp losses thereafter while a recovery above 2.1700 will mitigate this reversal count, reinstate the bull and expose potentially sharp gains thereafter.

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