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Momentum, Waves, Sentiment Conspire on Major Cotton Reversal

Posted 09/12/2019 10:33AM CT | RJO Market Insights

Since 26-Aug’s break below 05-Aug’s 57.26 low updated in 27-Aug’s Technical Blog, we’ve had 19-Aug’s 60.25 corrective high as our shorter-term risk parameter the market needed to sustain losses below to maintain a more immediate bearish count.  The market’s recovery above this level this morning confirms a bullish divergence in daily (below) momentum that defines 26-Aug’s 56.59 low as not only one of clearly developing importance, but potentially the END of the major bear trend from Jun’18’s 94.00 high.

In addition to that obviously important 56.59 low, the past three weeks’ basing process has left subsequent corrective lows at 58.03 and 58.98 that traders can now use as short-term and micro risk parameters from which to base non-bearish decisions like short-covers and new bullish punts.  IF today’s spasm is part of a broader bear market correction, it will be below these corrective lows and risk parameters that the market will indicate such.  In lieu of such weakness and for some compelling long-term factors discussed below, further and possibly protracted gains should not surprise straight away.

Contributing mightily to a base/reversal count that could be major in scope are factors like:

  • an arguably complete 5-wave Elliott sequence down from Jun’18’s 94.00 high as labeled in the weekly log chart above
  • waning downside momentum
  • the market’s proximity to the extreme lower recesses of the past 7-YEAR range shown in the monthly log chart below and,
  • historically bearish levels in our RJO Bullish Sentiment Index of the hot Managed Money positions reportable to the CFTC.

Indeed, this historically bearish sentiment/contrary opinion condition- it’s LOWEST SINCE 2006!- is the most indicting bullish factor that, made applicable as a technical tool because of today’s bullish divergence in momentum, warns of potentially tremendous upside VULNERABILITY.

Again, if this base/reversal count is wrong and the past few weeks’ rebound is just a correction within the still-developing bear trend, all the market’s gotta do is start failing below levels like 58.98, 58.03 and certainly 56.59.  Until and unless such weakness is shown, we believe a base/reversal environment that could be major in scope is at hand.  Per such, all previously recommended bearish policy and exposure has been or is advised to be neutralized.  Furthermore, setback attempts to 60.50 OB are advised to first be approached as corrective buying opportunities with protective sell-stops just below 58.98 and/or 58.03 and/or 56.59 commensurate with one’s personal risk profiles.

RJO Market Insights

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