RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

Overnight’s break below 04-Jun’s 1855.6 initial counter-trend low confirms a bearish divergence in momentum that defines Fri’s 1906.2 high as the latest smaller-degree corrective high and new short-term risk parameter this market is now required to recover above to not only arrest the intermediate-term relapse, but render it another 3-wave and thus corrective affair consistent with a broader bullish count.  Until and unless this market either recovers above 1906.2 or stems the intermediate-term slide with a bullish divergence in momentum, there’s no way to know the extent of this suspected corrective relapse.

The bearish divergence in momentum is clear in the daily log scale chart below.  Given the extent and impulsiveness of the rally from 08-Mar’s 1673.3 low, we believe 01-Jun’s 1919.2 high is just the 3rd-Wave of an eventual 5-wave sequence higher, including a resumption of the secular bull trend to new highs above Aug’20’s 2089 all-time high.  But short of relapsing below 18-Mar’s 1754.2 (suspected 1st-Wave) high in this sequence needed to negate it entirely, there’s no way to know or speculate on the extent of this (suspected 4th-Wave) corrective relapse.

Conversely however, we know precisely where the market has to recover above to confirm this count and re-expose the major bull:  above 1906.2.  Per such, shorter-term traders with tighter risk profiles are advised to move to a neutral/sideline position to circumvent the depths unknown of this correction while even longer-term players may want to pare still-advised bullish exposure to more conservative levels and exchange whipsaw risk (above 1906.2) for deeper nominal risk below 1754.2.

Adding to the technical and trading challenge following today’s bearish divergence in momentum is the fact that this mo failure occurred smack in the middle of the broader 10-month range bounded by Aug’20’s 2089 all-time high and Mar’21’s 1673 low shown in the weekly log chart below.  As we’ve discussed a zillion times, such range-center conditions are notorious for aimless whipsaw risk, where the risk/reward merits of initiating directional exposure are poor.  Under such conditions, we believe risk assumption should be lowered to more conservative levels that place an emphasis on tighter but objective risk parameters like 1906.2.

From an even longer-term monthly perspective (below), it’s easy Aug’20 – Mar’21’s setback attempt as a mere (4th-Wave) correction given the magnitude of the secular bull trend from Dec’15’s 1045 low.  But whether 08-Mar’s 1673.3 low COMPLETED the correction or just defined its lower boundary ahead of further lateral, range-bound trading that could span quarters remains to be seen.

These issues considered, shorter-term traders are advised to move to a neutral/sideline position to circumvent the depths unknown of a suspected bull market correction lower.  We will certainly be watchful for a relapse-stemming bullish divergence in short-term momentum needed to defined a tighter but reliable low and support from which a resumed bullish policy can be objectively based and managed.  Longer-term commercial players are advised to pare bullish exposure to more conservative levels to reduce the intra-range setback risk and jettison remaining exposure altogether on a failure below 1754.2.  This basically acknowledges and accepts the exchange of whipsaw risk (above 1906.2) for deeper nominal risk below 1754.

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