RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

In recent updates, we’ve discussed the extraordinary heights the corn contracts have reached, the clearly developing technical elements typical of major peak/reversal environments and our three reversal requirements that need to be satisfied before we can more objectively conclude major tops and move to new bear policies.  As we’ll show below, the extent and impulsiveness of last week’s relapses arguably satisfy the first two of our three reversal requirements (a momentum failure of a scale sufficient to threaten the major bull and proof of trendy, impulsive 5-wave behavior on the prospective initial counter-trend break).  But as the forces that have driven one of the corn market’s greatest bull moves in history are unlikely to evaporate in just a week’s worth of downside excitement and hyperbole, commensurately more peaking evidence remains likely and required as part of a typical peak/reversal process.  We believe “more” evidence is likely to come from either a potentially extensive (B- or 2nd-Wave) corrective rebuttal to last week’s break OR a (5th-Wave) resumption of the secular bull to one more round of new highs (that it subsequently would be required to fail to hold).

Before getting into the more practical (i.e. short-to-intermediate-term) levels around which most traders, end-users and producers prefer to base directional decisions that require, or should require, the specific definition of RISK to every such decision, the magnitude of this secular bull trend must be considered.  The extent and impulsiveness of the past week’s setback is nothing to sneeze at and indeed could be the (A- or 1st-Wave) start to a major correction or reversal lower.  Relative to the size of the secular bull however, it also falls well within the bounds of a mere corrective hiccup at this point within the still-developing bull to new highs above 7.35 in the Jul contract and above 6.38 in Dec.  Concluding, at this juncture, that the bull is done is OK, but the RISK of that decision is precisely to those 7.35 and 6.38 highs.

To truly break the secular bull trend from 21Apr20’s 3.09 low, it’s easy to see in the weekly log active-continuation chart below that the prompt contract needs to fail below the 5.30-area.  Basis Jul and Dec contracts specifically, these long-term failure points are defined by 30-Mar’s 5.18 low and 4.49 low, respectively.  As these levels are admittedly impractical even for long-term commercial players simply due to the exaggerated extent of Apr/May’s resumed rally, our challenge going forward is to identify the tighter but objective technical levels and conditions that at least present preferred risk/reward merits to a bearish or bear hedge policy ahead of even a larger-degree (i.e. weeks or months) correction, let alone a full-blown reversal.

This said, the prospect that 07-May’s 7.35 high completed a textbook 5-wave Elliott sequence is clear.  Also typical of virtually all major peak/reversal environments is the historically frothy levels of bullish sentiment/contrary opinion not seen since those that warned of and accompanied 2012’s infamous all-time high and massive reversal.  These technical facts have been and remain integral to the inevitable end to this secular bull in corn.  The current challenge however is trying to divine whether the past week’s breaks are the early underpinnings to these reversal in the Jul and Dec contracts

Below, we look at the Dec and Jul contracts individually and discuss what we believe needs to happen next, following last week’s break, to raise the odds of a broader peak/correction/reversal threat enough to warrant moves to new bearish policies and exposure.


As we’ll show below, yesterday’s break below 29-Apr’s 5.38 corrective low confirms a bearish divergence in daily momentum that breaks the uptrend from 30-Mar’s 4.49 larger-degree corrective low.  This momentum failure satisfies the first of our three reversal requirements.  Also important is the trendy, impulsive 5-wave sub-division of the decline from 07-May’s 6.38 high.  IF the new major trend is down, smaller-degree moves/waves would also be expected to unfold in such a trendy, impulsive manner.  This satisfies the second of our three reversal requirements.  The critical and immensely opportunistic third reversal requirement- proof of labored, corrective 3-wave behavior on a subsequent recovery attempt- remains to be seen.

The hourly chart below shows the developing potential for a bullish divergence in momentum.  This signal will be confirmed on a recovery above a minor corrective high at 5.75 from Fri morning, exposing at least the key 3-wave (B- or 2nd-Wave) correction complicit in any peak/reversal count OR a (5th-Wave) resumption of the secular bull to new highs above 6.38.

For what it’s worth, we’ve defined 50% and 61.8% retracements of the recent 6.38 – 5.33 plunge at 5.86 and 5.98, respectively.  IF this market can recover to anywhere around that area AND IF it’s somewhat of a labored, 3-wave recovery AND IF a bearish divergence in momentum arrests that recovery, then the risk/reward metrics of initiating a new bearish policy and exposure could be stupendous.  Subsequently and commensurately larger-degree weakness below this week’s initial counter-trend low (5.33 currently) would confirm the next level or degree of weakness and vulnerability and would allow for objectively adding to a bearish policy.

Moving out to a daily scale, it’s obvious that the past week’s relapse has broken Mar-May’s uptrend.  CLEARLY, this relapse is of a grossly insufficient SCALE to conclude the end of the secular bull.  Indeed and as discussed above, a commensurately larger-degree weakness below 30-Mar’s 4.49 larger-degree corrective low and long-term risk parameter is required to, in fact, break the past YEAR’S uptrend.  However and for momentum, sentiment and wave reasons mentioned above, the past week’s break is enough and has unfolded in a manner to conclude that it could be the (A- or 1st-Wave) start to a larger-degree correction or major reversal lower.  If this is the case however, satisfying that crucial third requirement of proof of 3-wave corrective behavior on recovery attempts must be satisfied.

In the hourly chart we discussed the prospect that the recent decline may be a complete 5-wave affair amidst waning downside momentum that warns of exactly such a corrective rebuttal higher.  Yesterday’s 5.37 low close and exact 50% retrace of Mar-May’s 4.53 – 6.36 rally on a daily log close-only basis below would seem to contribute to this interim call for some kind of recovery that, again, under the right circumstances could provide an outstanding risk/reward opportunity from the bear side.

These issues considered, shorter-term traders have been advised to move to a neutral/sideline position as a result of the past week’s shorter-term momentum failures.  Even a cautious bullish punts might be in order with a failure below 5.33 required to negate this call and warrant its cover.  In lieu of such sub-5.33 weakness, we anticipate a rebound to the 5.86-to-5.98-area or higher with a rebound-stemming bearish divergence in momentum required to present a preferred risk/reward opportunity from the bear side.  Longer-term commercial players remain advised to maintain a now-more-conservative bullish policy and exposure ahead of either a more protracted corrective rebound or a resumption of the secular bull ahead.  If the market stems the recovery per the advice to shorter-term traders, the time will come for even longer-term players to move to a new bearish policy.


The technical construct and expectations detailed above for the Dec contract are identical in the Jul contract.  The extent and impulsiveness of the past week’s break are sufficient for shorter-term traders to move to a neutral/sideline position and for longer-term players to pare exposure to more conservative levels with a recovery above 07-May’s 7.35 high and short-term risk parameter required to negate this call and reinstate the secular bull ahead of further and potentially steep gains thereafter.  As this contract has held the 38.2% retrace of Mar-May’s 5.18 – 7.35 rally on an hourly log scale basis of Globex day-session prices amidst the nicely developing potential for a bullish divergence in short-term momentum however, we anticipate at least a (B- or 2nd-Wave) corrective rebuttal and possibly a resumption of the secular bull in the period ahead.  Resumed weakness below yesterday’s 6.42 low will defer or threaten this call for such a rebound and preferred risk/reward selling opportunity.

We will be watchful for a rebound-stemming bearish divergence in short-term mo around the area of the (6.98) 61.8% retrace of the recent 7.35 – 6.42 decline to reinforce this peak/correction/reversal count and present a preferred risk/reward selling opportunity.

On a broader scale, here too, the extent and impulsiveness of this month’s relative plunge from 7.35 is hard to ignore as the prospective start to a broader peak/correction/reversal-threat environment.  Relative to the magnitude of the past YEAR’S major uptrend however, it would be premature at this juncture to conclude such a reversal without further peak/reversal behavior typical of what should be a longer-term process required to truly threaten the secular bull.  However, a few weeks of labored, corrective 3-wave recovery stemmed by a bearish divergence in momentum from some level shy of 7.35 could change the directional landscape of this market dramatically and present a risk/reward opportunity from the bear side that could span months or even quarters.

These issues considered, shorter-term traders have been advised to move to a neutral/sideline position for the time being and are further advised to wait for proof of corrective behavior on a recovery attempt to around the 6.98-area for a preferred risk/reward selling opportunity.  Long-term commercial players have been advised to pare bullish exposure to more conservative levels and to wait for either further proof of weakness before neutralizing remaining exposure and/or a corrective recovery and subsequent mo failure similar to that advised for shorter-term traders to move from a cautious bullish policy to a new bearish one.  Please stay tuned in the days and weeks ahead as this setup is one of the most compelling and opportunistic across all commodity sectors.

RJO Market Insights

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