Posted on Apr 28, 2023, 07:31 by Dave Toth

For months now, we’ve been discussing the incessant lateral range that has gripped this market since mid-Nov and where the odds of aimless whipsaw risk have been approached as high.  Complicating the matter, this “mere” six-month-chop is a miniscule subset of the middle-half bowels of this market’s massive but lateral historical range shown in the monthly log chart below.  It’s like a baby hoppy-choppy kangaroo sitting in the pouch of Big Mamma hoppy-choppy kangaroo.

In such rangey, lateral environments, the odds of hitting on a big directional 3rd-wave-type bet are poor, with abhorrent risk/reward metrics.  So what we endeavor to do in these rangey environments is adopt a trading-range approach whereby we wait for a bullish divergence in momentum from the lower-quarter of the range to take a cautious bullish punt and, conversely, a bearish divergence in mo from the upper-quarter of the range to take a bearish punt.  This approach also tries to avoid initiating directional exposure from the middle-half of the range where the risk/reward merits of directional exposure are the worst, unless the market provides a much tighter but objective risk parameter from which to do so.

On a weekly basis below, a few things stand out:

  • the extent and impulsiveness of last Nov’s rebound that defines 31-Oct’s 70.21 low as the end of the decline from Aug’s 119.59 high, exposing a correction or reversal higher,
  • grotesquely lateral corrective/consolidative behavior since Nov’s 89.92 high in the Mar contract that warns of an eventual resumption of Nov’s uptrend that preceded it (hopefully sometime in the next millennium),
  • still-historically-bearish levels in the Bullish Consensus ( measure of market sentiment/contrary opinion that are typical of broader base/correction/reversal environments.

From an intermediate-to-longer-term perspective, these factors, we believe still give odds toward at least one more good poke to the upside above Nov-Jan highs around the mid-to-upper-89-handle.  To mitigate this bullish count, the market needs to relapse below at least 24-Mar lows, 75.70 in the then-prompt May contract and/or 76.34 in the now-prompt Jul contract.

Drilling down further, the daily chart below shows the market smack in the middle of the 6-month range.  Taking a longer-term bullish punt around here and risking to 24-Mar’s 76.34 low or taking a bearish punt around here and risking to 19-Apr’s 85.23 high possess lousy risk/reward merits and are ill-advised.  Which way is baby and/or Big Mamma kangaroo gonna hop next???


As stated above, sometimes the market will provide a much tighter risk parameter within the range and also the improved odds of at least a short-term directional bet that, IF consistent with a longer-term view, warrants a directional bet.  The 240-min chart below shows one of these prospects.  The potential for a bullish divergence in momentum is developing nicely and will be confirmed on a recovery above 24-Apr’s 81.81 high.  If confirmed, this divergence will leave Tue’s 77.68 low in its wake as the latest, intra-range corrective low the market would then have to fail below to negate a bullish punt that have reward sights set on at least the upper-quarter of the 6-month range above 19-Apr’s 85.23 high and possibly a breakout above the upper boundary of the range.

From a shorter-term perspective, such risk/reward metrics still aren’t great, but at least a cautious bullish bet would be consistent with our long-term count calling for an eventual resumption of Nov’s rally.  These issues considered, traders remain advised to maintain a neutral/sideline policy due to the market’s position in the middle of the six-month range.  For those with an “outback spirit”, a gander at a cautious bullish stance from current 81.40-area levels would be advised with a failure below 77.68 required to negate this call and warrant its cover.

RJO Market Insights

RJO Market Insights specializes in forward-thinking analysis, focused on potential market-moving events and dominant factors driving price discovery. Detailed fundamental and technical coverage across multiple commodity sectors is combined with objectively-constructed trade recommendations to provide an industry-leading product for R.J. O’Brien’s Institutional clients, commercial hedgers, introducing brokers and individual investors free of charge. Content is distributed in both text and audio formats, with specialized service offerings provided by account type.
For more information on RJO Market Insights, contact your broker or RJO representative.