RJO FuturesCast

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Posted on Oct 24, 2022, 09:06 by Dave Toth

As updated last Wed, last week’s clear break below 13-Oct’s low reinforced and reaffirmed our major peak/reversal count introduced in 29-Aug’s Technical Blog.  Rolling now to the Dec contract as the prompt month, the extended nature of last week’s continued decline from 13-Oct’s 7.084 high has “3rd-wave” written all over it, suggesting that 13-Oct’s 6.672 low is the smaller-degree 1st-Wave of an eventual 5-wave decline from 06-Oct’s 7.188 high.  Per this continued bearish count that suggests today’s bounce is just part of a (4th-Wave) correction, the market shouldn’t come anywhere near that 6.672 1st-Wave low, let alone break it.  Per such, we’re identifying that 6.672 level as our new short-term bear risk parameter pertinent to shorter-term traders with tighter risk profiles.

What we suspect will unfold per this count is a (5th-Wave) resumption of the downtrend to at least one more new low below today’s 5.345 low following this corrective bounce.  Once this pop is arrested by a countering bearish divergence in short-term momentum, we’ll advise trailing this short-term bear risk parameter to a level just above the high such a mo failure will reject/define.

From a longer-term perspective, the daily log scale chart of the dec contract above shows the extent and impulsiveness of the decline from 23-Aug’s 10.119 high, with 06-Oct’s 7.436 high considered the larger-degree corrective high and key bear risk parameter this market needs to recoup to, in fact, break the clear and present and major 2-month downtrend.  The extent and 5-wave impulsiveness of this INITIAL counter-trend move to a 2-YEAR secular bull market is an important component of our major PEAK/reversal count.  As a reminder, this massive peak/reversal process has been and remains predicated on:

  • 19-Sep’s bearish divergence in WEEKLY momentum amidst
  • historically frothy levels in the Bullish Consensus (marketvane.net) not seen since those that warned of and accompanied Nov 2018’s major top, and
  • a textbook complete and massive 5-wave Elliott sequence up from Jun’20’s 1.517 low.

But even against this backdrop, the first two of our three key reversal requirements are 1) a bearish divergence in momentum of a scale sufficient to break the major trend and 2) proof of 5-wave impulsive behavior on the initial counter-trend decline.  These requirements have been satisfied.  What traders and analysts now need to beware is that key third reversal requirement: proof of 3-wave corrective behavior on a subsequent (suspected 2nd-wave) corrective rebuttal back up.

Somewhere along the line and following some multi-day or even multi-week basing behavior that will likely include a bullish divergence in momentum that will at least defer the current bear, a countering B- or 2nd-Wave corrective rebuttal to Aug-Oct’s decline could be extensive in terms of both price and time following such a massive 26-month bull trend.  Herein lies the importance of identifying appropriately tighter bear risk parameters as this downtrend proceeds.

These issues considered, a bearish policy remains advised with a recovery above 6.672 in the now-prompt Dec contract required to neutralize bearish exposure.  We realize this is quite a distance away from spot prices at the moment, even for longer-term commercial players, and will await to see what shorter-term price action the market provides in the week or two ahead to try to tighten this risk parameter further but objectively.  The only other option following last week’s break is to take profits or pare/neutralize bearish exposure now and acknowledge and accept whipsaw risk below today’s 5.345 low in exchange for steeper nominal risk above 6.672.  Until such basing behavior is proven however or the market recovers above 6.672, a continuation of the 2-month downtrend to new lows below 5.345 should not surprise.

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