RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

Yesterday’s break below Thur’s 61.82 initial counter-trend low confirms a bearish divergence in short-term momentum as shown in the hourly chart below.  This divergence defines 04-May’s 66.95 high as the probable end of a textbook 5-wave Elliott sequence up from 14-Apr’s 41.50 low.  The Fibonacci fact that the suspected 5th-Wave of this sequence from 29-Apr’s 54.77 low spanned a length 61.8% of (i.e. 0.618 progression) of the net distance of Waves-i-thru-iii from 41.50 to 60.77 would seem to reinforce this count and defines last week’s 66.95 high as one of developing importance and our new short-term risk parameter from which non-bullish decisions like long-covers and cautious bearish punts can be objectively based and managed ahead of at least a steeper correction of Apr-May’s 41.50 – 66.95 rally.

The extent and impulsiveness of Apr/May’s recovery is not unimpressive and easily fits the bill as just the initial (A- or 1st-Wave) of a broader base/correction/reversal PROCESS.  But especially coming off such a deep, punishing bear market meltdown such as that experienced in 1Q20, a potentially extensive (B- or 2nd-wave corrective rebuttal/retest of last month’s low would not be uncommon at all within such a process.  As a result of the interim peak/reversal facts and factors discussed above, we believe such a correction is at hand hand and could easily retrace 50% (54.22) or 61.8% (51.22) or more straight away while 04-May’s 66.95 high remains intact as a resistant cap and risk parameter.

From a historical perspective shown in the monthly log active-continuation chart below, the market’s quick, violent return to the middle of the middle-half bowels of the 40-to-100-range that has encapsulated it for the past FIVE YEARS questions the risk/reward merits of any bullish policy “up here”, especially given all of the metrics that went into the prior YEAR’S complete meltdown.  From this long-term perspective, the risk/reward merits of a bullish policy and exposure from the 51-handle-area are admirable.  From 60+ levels, not so much.

These issued considered, traders are advised to move to a neutral-to-cautiously-bearish policy from current 60.25-area levels OB with a recovery above 66.95 required to negate this call, warrant its immediate cover and return to a bullish policy.  In lieu of such strength, we anticipate further and possibly protracted corrective losses straight away to the 54-handle and possibly the 51-handle or lower where a relapse-stemming bullish divergence in momentum could provide one of the great risk/reward buying opportunities for the second-half of 2020.

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