Posted on Sep 27, 2022, 07:47 by Dave Toth

In 19-Sep’s Technical Blog we discussed the labored, precarious nature of the past 3-1/2-months’ resumption of the secular bull trend and the market’s need/requirement to sustain gains above 14-Sep’s 144.275 smaller-degree corrective low and short-term risk parameter in order to maintain a cautious bullish stance.  In the now-prompt Dec contract, that analogous corrective low and short-term risk parameter is detailed in the hourly chart below at 149.875.  The Dec contract’s failure below that level last Thur confirmed the bearish divergence in short-term mo that threatened the bull and warranted non-bullish action like at least long-covers and cautious bearish punts.  More importantly however, this short-term weakness led to a confirmed bearish divergence in DAILY momentum below 31-Aug’s 148.325 larger-degree corrective low that, in fact, breaks the 3-1/2-month uptrend from at least 31-May’s 142.025 low and possibly the secular bull market.

The extent and impulsiveness of the past week’s decline obviously identifies 20-Sep’s 152.225 high as one of importance and our new long-term risk parameter from which longer-term commercial players are urged to base and manage non-bullish decisions like long-covers and new bearish exposure.  On a shorter-term basis, yesterday’s resumed plunge leaves yesterday’s 149.60 high in its wake as the latest smaller-degree corrective high and a short-term risk parameter from which shorter-term traders with tighter risk profiles can objectively manage non-bullish decisions like long-covers and bearish punts.

Former 148-handle-area support is considered new near-term resistance.

From a longer-term perspective, it’s important to understand the past three days’ price action within the context of a peak/reversal-threat environment that could be massive in scope.  These peak/reversal elements include:

• a confirmed bearish divergence in WEEKLY momentum (below)
• an “outside WEEK down” last week (higher high, lower low and lower close than the previous week’s range and close)
• still-historically frothy levels (81%) in our RJO Bullish Sentiment Index
• the diagonal triangle (or “rising-wedge”) rally from 31-May’s 142.025 low that’s arguably the completing 5th-Wave of the secular bull trend.

Per this stubbornly bullish managed money skew, we’ve already seen a number of markets tank as a result of similar grossly bullishly-skewed positions either following bearish divergences in momentum or, in cases like the British pound and cotton, into the teeth of a reversal lower.  This long-&-wrong exposure is fuel for downside vulnerability when the overall market forces the capitulation of this exposure.  To mitigate this bearish threat now, the Dec contract simply needs to recoup last week’s 152.225 high.  Until and unless such strength is resurrected, we believe that high could stand for quarters or even years given the negative impact major and still-young bear markets in equities around the world will have on all commodity sectors.

Finally, on an even longer-term, active-continuation basis, the monthly log chart below shows that a failure below May’s 129.975 corrective low is required to, in fact, break the secular bull market from Apr’20’s 76.60 low.  There may be some long-term commercial players who are willing to accept a more than 14% drawdown before conceding to a major peak/reversal environment in order to maintain a long-term bullish policy.  Until and unless this market recovers above 152.225, which is a 3% risk, we believe this acknowledgement and acceptance of whipsaw risk, back above 152.225, is a favorable and preferred exchange for deeper nominal risk below 129.975.

These issues considered, traders have been advised to at least neutralize all previously recommended bullish policy and exposure and move to a neutral-to-cautiously-bearish tack.  A recovery above 149.60 is required to warrant a move to the sidelines by shorter-term traders while commensurately larger-degree strength above 152.225 is require for longer-term commercial players to follow suit.  In lieu of such strength, further and possibly protracted, long-term losses are expected.  This said, at some point, we may have to beware and navigate a larger-degree 2nd-Wave corrective rebuttal to what we believe is the past week’s 1st-Wave down of a major reversal lower.