RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

As much as we’ve discussed the aimless whipsaw risk fully expected from deep within the middle-half bowels of this market’s massive lateral range that dates back 12 YEARS, the fallout/reversal following the market’s gross failure to sustain late-Dec/early-Jan’s “breakout” above a ton of former resistance-turned-support around the 1.69-handle has been stunning.  We can only surmise at this point that this total gutting is the result of the overall market forcing the mass capitulation of historically-skewed bullish exposure by the Managed Money community.  We’ll discuss this important sentiment/contrary opinion factor below.

On a shorter-term basis, the past couple days’ clear, impulsive and steep resumption of this reversal obviously reinforces a broader bearish count, leaving mid-day Tue’s 1.6557 high in its wake as the latest and key corrective high this market is now required to recoup to jeopardize the impulsive integrity of a broader bearish count that could have miles to go.  Former 1.62-handle-area support, since demolished, serves as a new near-term resistance candidate and a short-term risk parameter.  In lieu of a recovery above at least 1.6300, further and possibly extensive losses are expected.

The weekly (above) and monthly (below) log scale charts show how deep within the middle-half of lateral “ranges-within-ranges” this market remains.  We have discussed the greater odds or aimless whipsaw risk typical of such conditions for the past year, with the market, unfortunately, complying with nothing short of extraordinarily treacherous trading conditions.  Clearly and very quickly, over just the past 2-1/2-weeks, the intra-range directional scales have tilted lower, with what could be relatively shocking downside potential.

While tomorrow and Fri 31-Jan’s updates on the CFTC’s COT Report and our RJO Bullish Sentiment Index are needed to confirm, we strongly suspect that the sharp extent to which this market has collapsed is due to the gutting and forced capitulation of the Managed Money community’s historically-skewed bullish exposure.  Indeed, our latest RJO BSI reading of 93% (as of Tue Jan 14’s close) reflecting a whopping 119K long positions to just 9.5K shorts is the HIGHEST since Jul’19 that warned of and accompanying last year’s 2.09-to-1.45 decline.

There’s no way to know at this juncture how egregious this current bear threat is, but as a result of the extent of this month’s relapse, the Sep-Jan recovery attempt from 1.4475 to 1.8011 cannot be ignored as a 3-wave affair as labeled above.  Left unaltered by a recovery above at least our 1.6557 key risk parameter needed to jeopardize the impulsive integrity of a more immediate bearish count, this 3-wave recovery must be acknowledged as a corrective/consolidative event that warns of a resumption of Apr-Seop’19’s downtrend that preceded it.  This would suggest a punishing and sustained 5-wave decline to sub-1.4475 levels in relatively short order (i.e. a couple months or less).  And looking at the monthly chart below, a run at Dec’18’s 1.2293 low wouldn’t then seem unreasonable either.

In sum, the extent and impulsiveness of this month’s peak/reversal is impressive.  And given the historic extent to which the Managed Money community had its collective neck sticking out on the bull side, potentially steep, even relentless losses should not surprise.  Strength above 1.6557 is minimally required to negate this bearish count.  The challenge now is determining a favorable and objective risk/reward condition from which to position for this move.  And frankly, the market has come apart to quickly to identify one “down here”.  Per such, a neutral/sideline policy is advised for the time being.  We will be watchful for an interim corrective hiccup and a minor bearish divergence in short-term mo to stem that hiccup and define a more reliable and shorter-term high and risk parameter from which bearish exposure can be objectively based and managed.  In the meantime, further and possibly steep, relentless losses should not surprise.

RJO Market Insights

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