Posted on May 02, 2023, 08:35 by Dave Toth
The market’s relapse this morning below last week’s 2.268 low and our short-term risk parameter discussed in last Fri’s Technical Blog mitigates a more immediate, if interim bullish count calling for further lateral-to-higher prices as part of a larger-degree correction up from 14-Apr’s 2.143 low in the Jun contract. As a result of this relapse, the market has reaffirmed 19-Apr’s 2.543 high as a key resistance and short-term risk parameter this market now has to recoup to reinstate and reaffirm the base/correction count.
This said and given that 14-Apr’s 2.143 low and support remains intact, so too does the prospect that today’s relapse is still part of a (B- or 2nd-Wave) corrective setback within a broader base/correction/reversal threat. IF this is the case, then somewhere between spot and that 2.143 low, “down here” at the lower-quarter of the past month’s range, we would expect the market to arrest this resumed weakness with a countering bullish divergence in momentum. In lieu of such, a resumption of the major bear trend to new lows below 2.143 should hardly come as a surprise.
Moving out further, the magnitude of the secular bear market from last year’s high is clear in both the daily log chart of the Jun contract above and the weekly log active-continuation chart below. In recent updates, we’ve warned of a much more challenging and volatile perhaps multi-month period ahead due to:
- waning downside momentum
- historically bearish sentiment/contrary opinion levels
- and arguably complete or completing and massive 5-wave Elliott sequence down from last Aug’s 10.028 high, and
- the market’s return to the lower-quarter of its massive but lateral historical range.
Typically, the brunt of major trends occurs quickly, with the bottoming (in this case) PROCESS taking TIME in order for the forces that have driven the major downtrend to erode and reverse. Late-Feb/early-Mar’s pop may be an early element to this slowdown/bottoming process. Likewise with mid-Apr’s hiccup.
There’s also the distinction to be made between 14-Apr’s 2.143 low in the now-prompt Jun contract and that day’s 1.946 low in the then-prompt May contact. Given the vagaries of the futures markets’ contract roll, we could easily see a new low below 2.143 in the Jun contract without this contract breaking the 1.946 low on an active-continuation basis. We could just as easily see the secular bear blow that 1.946 low away and test 2020’s 1.517 low.
The takeaway from the technical elements listed above as well as prices for various contract months is that the easy, downtrending money is likely behind us, giving way to a much more volatile and challenging environment with greater odds of aimless whipsaw risk that warrants a more conservative approach to directional risk assumption.
Finally, the thing that jumps off the page of the monthly log active-continuation chart below is the market’s quick, precipitous return to the lower-quarter of it’s massive but lateral historical range. Just like the risk/reward merits of maintaining a longer-term bullish policy became questionable last summer when the market poked into the upper-quarter of this range amidst insane bullish sentiment, the opposite is true “down here” with respect to the risk/reward merits of a longer-term bearish policy.
What’s also to be gleaned from this monthly perspective however is the amount of TIME the previous major bottoming PROCESSES took in spring/summer 2020, 1Q16 and Jan-Jun 2012. These were all multi-month, volatile, choppy, whipsaw markets. We expect the same in the three or four or five or six months ahead.
These issues considered, a bearish policy remains advised for long-term commercial players with a recovery above at least 2.543 and preferably 03-Mar’s 3.027 larger-degree corrective high on an active-continuation basis required to pare and then neutralize exposure. Shorter-term traders with tighter risk profiles are advised to maintain a neutral/sideline position for the time being as the risk/reward merits of either a cautious bearish or bullish punt around the lower-quarter of the past month’s range in the Jun contract are poor.