RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

Posted on Nov 03, 2022, 08:20 by Dave Toth

The market’s failure overnight below 27-Oct’s 3757 corrective low and short-term risk parameter discussed in Mon’s Technical Blog confirms a bearish divergence in short-term momentum.  This mo failure breaks the uptrend from 13-Oct’s 3502 low and defines Tue’s 3928 high as THE level this market is now required to recoup to chalk this current relapse up as a correction and resurrect a larger-degree correction or reversal higher.  In lieu of such 3928+ strength and against the backdrop of this year’s secular bear trend, traders and investors cannot ignore the prospect that the past few days’ relapse is the early stage of the resumed secular bear trend to new lows below 3502.

To be sure, today’s bearish divergence in short-term momentum is of an insufficient scale to conclude the resumption of the longer-term weakness below 3502.  Indeed, there’s a lot of green between spot and 13-Oct’s pivotal 3502 low the market needs to break to reinstate the secular bear.  But it is NOT premature to identify and conclude Tue’s 3982 high as one of developing importance and a short-term but key parameter from which the risk of a resumed bearish policy and exposure can be objectively based and managed.

Stepping back to a daily scale, what’s important about today’s bearish divergence in admittedly short-term momentum is that it stems from the immediate area around the 50% retrace of Aug-Oct’s decline.  3915 is the 50% retrace of Aug-Oct’s 4328 – 3502 decline on a linear scale high-low chart above while 3935 is the 50% retrace of Aug-Oct’s 4310 – 3593 decline on a daily log close-only basis below.

In and of themselves, such merely “derived” and so-called “technical levels” like trend lines, various “bands”, the ever-useless moving averages and even the vaunted Fibonacci relationships we cite often in our analysis have always been unreliable reasons and levels on which to base trading decisions in the absence of an accompanying confirmed momentum failure.  COMBINED with such a confirmed divergence such as overnight’s failure below 3757 however, the result can be a powerful one that, at the very least, identifies a specific and objective level/parameter from which directional decisions can be objectively based and managed.  Tue’s rejected/defined 3928 intra-day high and/or 28-Oct’s 3923 high close are precisely the result of today’s momentum failure and the levels this market must now recoup to resurrect the past few weeks’ recovery.  Until and unless such strength is proven, and again, given the backdrop of this year’s major bear, a resumption of this major bear should not come as a surprise.

From a longer-term perspective and as discussed in 13-Oct’s Technical Blog following that day’s bullish divergence in short-term momentum, we postulated a bear market correction of an estimated 50% retrace of Aug-Oct’s portion of this year’s broader bear market similar to the Jul-Aug 2008 correction within 2007 – 2009’s secular bear market shown in the weekly log chart below.  Again, while today’s bearish divergence in short-term momentum is of an insufficient scale to conclude the major bear’s resumption, the weekly log chart of this year’s major bear trend (above) remains a virtual mirror image of the 2007 – 2009 collapse.

If a similar fate is to be even deferred, this market must now recover above 3928.  To negate it, commensurately larger-degree strength above 16-Aug’s 4328 major corrective high remains required.  Until and unless such strength is proven, traders and investors should now beware proof of trendy, impulsive behavior lower in the days/week immediately ahead that would reinforce this long-term bearish call and raise the odds of an eventual meltdown below 13-Oct’s pivotal 3502 low.  A break below 3502 will obviously reaffirm the secular bear trend and could expose a concentrated collapse similar to the 2-month, 36% collapse similar to Aug-Oct 2008.

Finally and especially given today’s momentum failure that breaks the past three weeks’ rally, long-term traders and investors are reminded of the long-term elements on which our major peak/reversal count is predicated:

  • bearish divergences in weekly and monthly momentum back in Jan
  • “outside” week, month and quarter the week, month and quarter of 04Jan22’s 4818 high
  • historically extreme bullish sentiment/contrary opinion
    • 4-year highs in the Bullish Consensus (marketvane.net)
    • equity and equity-to-cash ratios in American portfolio allocation
  • inverted Treasury yield curve
  • a complete 5-wave Elliott sequence from Mar’20’s 2174 low AND an arguably complete and massive 5-wave sequence from Mar 2009’s 666 low.
  • the extent and 5-wave impulsiveness of Jan-Jun’s initial counter-trend decline, and
  • 3-wave corrective Jun-Aug recovery.

These technical facts and observations warned of and accompanied 2018 – 2020’s major consolidation and both the 2007 – 2009 and 2000 – 2002 major bear markets.  To mitigate these long-term bearish factors and suggest “just” a major consolidation from Jan’s 4818 high, this market needs to recoup 16-Aug’s 4328 major corrective high and long-term bear risk parameter.  Until and unless such 4328+ strength is proven, the recovery attempt from 13-Oct’s 3502 low to Tue’s 3928 high falls well within the bounds of a (“smaller-degree” 2nd-Wave) correction within a massive 3rd-Wave down from 4328 that warns of steep, dramatic losses below 3502 similar to Aug-Oct 2008’s 36% meltdown.

These issues considered, short- and long-term traders are advised to neutralize any interim bullish exposure and move to at least a neutral/sideline position if not a resumed bearish policy with a recovery above 3928 required to negate this call and resurrect a larger-degree correction or reversal higher and a resumed cautious bullish policy.  Until and unless such 3928+ strength is shown, further and possibly accelerated losses should not surprise, including a resumption of this year’s major bear trend below 3502.

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