RJO FuturesCast

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In this morning’s Canola Technical Blog, we discussed today’s bearish divergence in daily momentum that, along with an arguably complete 5-wave Elliott sequence and a bearish divergence in WEEKLY momentum, raises the odds of a peak/reversal threat that may be major in scope.  Against this backdrop and due to canola’s approximate 85% positive correlation to soybean oil this year, we discuss below the key directional flexion points in both the Jul and Dec bean oil contracts around which to navigate the current correction-vs-reversal debates.

DEC SOYBEAN OIL

We begin with the Dec contract where, as a result of yesterday’s break above both 17-May’s 76.54 and 28-Apr’s 77.22 Globex day-session highs, the market has reinstated and reaffirmed its secular bull trend.  The important by-products of this resumed/continued strength are the market’s definition of smaller- and larger-degree corrective lows at 73.82 and 72.13 that it must now sustain gains above to maintain a more immediate bullish count.  Its failure to do so is required to confirm bearish divergence in momentum, first on a small scale and then on a larger-degree scale capable of threatening the secular bull market.  Until and unless such weakness is proven, the trend is up on all scales and should not surprise by its continuance or acceleration, regardless of what canola does.

On much broader scales, it’s easy to see the prospect that the bull could be in its final 5th-wave phase of an Elliott sequence up from 15Dec21’s 50.97 low on a daily log scale basis above where upside momentum has been waning since late-Apr.  To CONFIRM the momentum divergence however, this market must fail below 09-May’s 72.13 larger-degree corrective low and key long-term risk parameter.

It’s also notable on an even longer-term weekly log basis below that the rally from Dec’s 50.97 low could be the completing 5th-wave of a massive wave sequence that dates from May’20’s 28.40 low.  As commensurately larger-degree and totally impractical weakness below Dec’s 50.97 major corrective low would be required to confirm this massively bearish count, we would direct traders’ attentions to that 72.13 corrective low and key risk parameter, the break of which would be hard to ignore as the prospective and smaller-degree 1st-Wave of an eventual major peak/reversal process.

Integral to and typical of such a major peak/reversal-threat environment is historically frothy bullish sentiment/contrary opinion levels shown below.  But as always, contrary opinion is not an applicable technical tool in the absence of an accompanying confirmed bearish divergence in momentum.  Herein lies the crucial importance of 09-May’s 72.13 low and key bull risk parameter.

These issues considered, a bullish policy and exposure remain advised with a failure below 73.82 required for shorter-term traders to move to the sidelines and commensurately larger-degree weakness below 72.13 required for longer-term commercial players to follow suit.  In lieu of such weakness, further gains remain expected.  This said and per the peak/reversal-threat elements lying in the weeds, traders are urged to stay alert and flexible to what could be a sea change anytime now.

JUL SOYBEAN OIL

Only a glance at the hourly chart of the Jul contract below is needed to see that, unlike the Dec contract, it remains well below the key highs and resistance defined by 16-May’s 84.64 Globex day-session high and certainly 28-Apr’s 86.69 Globex day-session high.  16-May’s 84.64 high remains intact as our short-term bear risk parameter.  This is the level the market must recoup to confirm Apr-May’s sell-off attempt as a 3-wave and thus corrective affair that would re-expose the secular bull trend.  As a result of yesterday’s bullish divergence in short-term momentum above 26-May’s 80.91 corrective high however, odds have improved that the sell-off attempt from 86.69 to Wed’s 77.00 low is a 3-wave and thus corrective event.  Left unaltered by a relapse below 77.00 and especially following a recovery above 84.64, a (5th-Wave) resumption of the secular bull trend should not come as a surprise.

From a longer-term perspective relative to the secular bull trend, and despite 19-May’s bearish divergence in daily momentum, Apr-May’s sell-off attempt from 87.65 to Wed’s 77.00 Globex day-session low easily falls within the bounds of another mere correction ahead of a (5th-Wave) continuation of the secular bull to at least one more round of new highs.  A relapse below 77.00 however would not only threaten this bullish count, but quickly resuscitate a peak/reversal process that could produce sharp, sustained and steep losses immediately thereafter, perhaps similar to the bearish developments in canola.

These issues considered, we believe this market has defined 77.00 and 84.64 as the key directional flexion points heading forward.  Traders are advised to toggle directional biases and exposure around these specific levels commensurate with their personal risk profiles.  If the secular bull trend has yet to end, we do not believe it is far off, with Wed’s 77.00 low a pivotal one around which to now measure it.  Heading into the key summer months perhaps spearheaded by 30-Jun’s key crop reports, this s going to be a fun and very opportunistic one to watch.

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