RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

Overnight’s break below 20-May’s 3807 low reaffirms our longer-term bearish count discussed in Fri’s Technical Blog and confirms 30-May’s 4202 larger-degree corrective high as our new long-term bear risk parameter this market is now required to recover above to threaten this count and warrant defensive/short-covering measures by long-term institutional players and investors.  From a short-term perspective and as a result of the extent and 3rd-wave impulsiveness of Fri’s component of the break, we’re defining 07-Jun’s 4076 low as the initial 1st-Wave low of an eventual 5-wave sequence down from 03-Jun’s 4189 high as our short-term bear risk parameter for the time being, pertinent to shorter-term trades with tighter risk profiles.  If tis count is correct, the market shouldn’t come anywhere near this 4076 threshold before a little 4th-Wave corrective hiccup and another round of (5th-Wave) losses creates the potential for a bullish divergence in short-term momentum that would then allow us to objectively trail this short-term risk parameter to that 4th-Wave corrective high.

From a long-term perspective the market has yet to provide any evidence a al to diffuse our major peak/reversal count that began with 20-Jan’s bearish divergence in daily momentum.  24-Feb’s bearish divergence in weekly and monthly momentum rendered historically frothy sentiment/contrary opinion elements applicable that then conspired with an “outside MONTH down” in Jan, historically-skewed equity and equity-to-cash portfolio allocations and a severely flattening yield curve to present identical peak/reversal elements that warned of and accompanied Jan’18’s start of a major multi-quarter correction, Oct 2007’s major top and 1Q2000’s major top.  These latter two cases saw 58% and 50% drawdowns, respectively.  And with today’s resumption of the secular bear market in 10-yr T-notes, the 10s-30s yield curve shown in the monthly log chart below is on the verge of inverting.  While unique, an assault on such an inversion between 10-yr Treasury rates and 30-yr rates has warned of and accompanied every major peak and reversal environment to the equity market.

These issues considered, traders are advised to maintain a bearish policy and exposure from 4071 recommended in 07-Jun’s Trading Strategies Blog with a recovery at this point above 4076 required to negate this call and warrant its cover.  We will keep a keen eye on a smaller-degree corrective hiccup and another round of new lows thereafter in order to be able to objectively trail short-term bear risk on this position to the top of that correction.  In lieu of such behavior, further and possibly steep, accelerated losses straight away remain anticipated.

Bart Smith