Posted on Dec 02, 2022, 08:24 by Dave Toth

While the hourly chart of Globex day-session prices below does not yet reflect it, the market has relapsed below last week’s 6.58 low in the now-prompt Mar contract that renders the recovery attempt from 15-Nov’s 6.53 low a 3-wave affair as labeled.  Left unaltered by a recovery above Tue’s 6.74 high, this 3-wave recovery is considered a corrective/consolidative structure that not only warns of a resumption of Oct-Nov’s downtrend that preceded it to new lows below 6.53, but also reinforces our broader peak/reversal count introduced in 17-Oct’s Technical Blog.  Per such, we’re identifying 6.74 as our new short-term parameter from which shorter-term traders with tighter risk profiles can objectively rebase or resurrect a bearish policy and exposure from current 6.56-area prices.

The past couple days’ resumed short-term weakness is a subset of not only a peak/reversal process from 10-Oct’s 7.12 high, but also a massive peak/reversal process that dates from 15-May’s 7.69 high in which Jul-Oct’s recovery from 5.69 to 7.12 is considered a major (B- or 2nd-Wave) corrective rebuttal to May-Jul’s (A- or 1st-Wave) decline.  If correct, this count now warns of a dramatic (C- or 3rd-Wave) resumption of May-Jul’s decline to levels potentially well below 5.69.  Moreover, such c- or 3rd-waves are characterized by sustained, trendy, impulsive, even relentless price action.

A deferral or threat to this major bearish count is the market’s position still deep within the middle-half bowels of this year’s range where we do not want to underestimate the higher odds of continued aimless whipsaw risk.  Herein lies the importance of identifying risk parameters like 6.74.  From a longer-term perspective and on the heels of nearly two months of flagging price action, commensurately larger-degree strength above 10-Oct’s 7.12 high remains required to negate this specific and major bearish count.  In effect, the directional bet is that this market will trade 5.69 before 7.12.

Contributing mightily to this major bearish count is the extent to which the Managed Money community has its collective neck sticking out on the bull side.  Indeed, at a current 80% level reflecting 226K long positions reportable to the CFTC versus only 55K shorts, fuel for downside vulnerability is in ample supply should the overall market force the capitulation of this bullish exposure.

On a longer-term active-continuation basis, the weekly log chart above shows Jul-Oct’s 61.8% retrace of Apr-Jul’s 8.25 – 5.62 decline that easily fits within the bounds of a major B- or 2nd-Wave correction within a massive peak/reversal process from the extreme upper recesses of this market’s historical range shown in the monthly log chart below.  The rejection thus far of the extreme upper recesses of this range amidst historically frothy sentiment levels is virtually identical to 2012’s massive top before the market melted down.

These issues considered, a bearish/bear-hedge policy and exposure remain advised for longer-term commercial players with commensurately larger-degree strength above 7.12 required to negate this call and warrant its cover.  Shorter-term traders with tighter risk profiles that may have gotten whipsawed out of bearish exposure following the past couple weeks’ consolidation are advised to return to a bearish policy and exposure at-the-market with a recovery above 6.74 required to negate this call and warrant its cover.  In lieu of such 6.74+ strength and especially following a break of 15-Nov’s 6.53 low, further and possibly steep, accelerated losses are anticipated straight away.

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.