RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

Posted on Aug 25, 2022, 09:35 by Dave Toth

The market’s failure today below 15-Aug’s 143.675 corrective low and our short-term risk parameter discussed in 16-Aug’s Technical Webcast confirms a bearish divergence in daily momentum that defines 17-Aug’s 146.25 high as one of developing importance and possibly the END of not only a textbook 5-wave Elliott sequence up from 11-Jul’s 138.025 low, but an even larger-degree, 3-wave corrective recovery from 31-May’s 135.90 low that could expose a resumption of Apr-May’s downtrend that preceded it.  Given that this 146.25 high is also the extreme upper recesses of this year’s entire range and that Managed Money exposure is skewed tremendously to the bull side, this admittedly smaller-degree momentum failure warns of the start of the resumption of a major peak/reversal count that would/could expose major losses in the period immediately ahead similar to those experienced the past two weeks in hogs.  Per such, we’re defining last week’s 146.25 high as our new short-term but key risk parameter from which traders are advised to reverse from a bullish policy and exposure to a bearish policy.

The daily bar chart above and close-only chart below shows the unique and compelling combination of a bearish divergence in momentum from the extreme upper recesses of this year’s range.  Until and unless this market can recoup last week’s highs, minimally, the risk/reward metrics of a continued bullish tack have become questionable enough to warrant moving to a neutral/sideline position.  At most, and given historically bullish Managed Money exposure that is a source of fuel for downside vulnerability, a major reversal lower may lie directly ahead.

This said, these daily charts show this market still ABOVE a key are of former resistance around the 143.00-area (give-or-take) and the Fibonacci minimum (143.12) 38.2% retrace of May-Aug’s rally.  IF this current setback is “just” another corrective hiccup within a broader bullish count, we believe this market MUST hold above the 142-handle.  Further erosion into a 141-handle will reinforce a peak/reversal count and expose potentially steep, even relentless losses thereafter.

The weekly log chart of the Oct contract below shows the market’s rejection thus far of the upper recesses of this year’s range amidst a frothy 82% reading in our RJO Bullish Sentiment Index of the hot Managed Money positions reportable to the CFTC reflecting a whopping 85K long positions to just 19K shorts.  As we’ve just witnessed in the hog market the past two weeks, this combination of:

  • a bearish divergence in momentum amidst
  • historically frothy sentiment levels and
  • the market’s proximity to the extreme upper recesses of this year’s range

is a severely threatening one that could lead to protracted losses as a result of the overall market forcing the capitulation of this skewed bullish exposure.  If this count is wrong, all the market needs to do now is recoup last week’s 146.25 low.  Until and unless such strength is proven, we believe odds have grown in favor of a potentially sharp reversal lower

These issues considered, traders have been advised to neutralize all bullish exposure and are further advised to move to a new bearish policy and exposure at-the-market (143.35) with a recovery above 146.25 required to negate this call and warrant its cover.  In lieu of such strength, further and possibly protracted losses straight away should not surprise.

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.