Posted on Nov 01, 2023, 08:09 by Dave Toth
While it was only by a few ticks, Mon’s slip below a very minor corrective low at 424.8 from 25-Oct confirms a bearish divergence in very short-term momentum. This admittedly short-term mo failure is of an insufficient scale to conclude a broader peak/correction/reversal threat, but it IS enough to conclude Fri’s 448.4 high as one of developing importance and a short-term parameter this market is now required to recoup to reaffirm and reinstate Oct’s impressive, impulsive uptrend. Per such, we’re identifying 448.4 as our new short-term but key parameter from which the risk of non-bullish decisions like long-covers and cautious bearish punts can be objectively based and managed.
Again, while we cannot conclude a broader peak/reversal count from proof of just very short-term weakness, a unique and compelling list of technical facts and observations warns of exactly such a more protracted move south. One of these observations is the prospect that the rally from 05-Oct’s 366.5 low is a textbook complete 5-wave Elliott sequence as labeled in the hourly chart below. To negate this call and reinstate a bullish count, all the market has to do is take out Fri’s 448.4 high. Until and unless such strength is proven, the technical elements discussed below question the risk/reward metrics of maintaining a bullish policy “up here” around 425-to-450-area levels.
One concern for bulls should be the Dec contract’s inability thus far to sustain last week’s gains above BOTH 21-Jun’s 432.6 high and 08-Mar’s 437.7 high (shown in the weekly chart further down). And until nullified by resurrected strength above 448.4, we believe it ultimately could prove very important that the prospective 5-wave rally from 05-Oct’s 366.5 low came within a buck of the (449.0) 1.618 progression of the rally from 29-Jun’s 374.6 low to 27-Jul’s 424.7 high shown in the daily log active-continuation chart below. This Fibonacci fact warns that all of the price action from that 374.6 low is an “irregular” correction of 13-Feb-to-29-Jun’s downtrend in which that Jun-Jul recovery is the A-Wave of the correction, the clear 3-wave decline to “new lows” at 05-Oct’s 366.5 is a B-Wave “irregular” within the correction (because it broke 29-Jun’s 374.6 start of the correction), and Oct’s 5-wave rally is the completing C-Wave of the correction.
IF IF IF this count is correct, this infers a resumption of Feb-Jun’s downtrend that preceded it to new lows below 366. AND without the market trading just $20 higher. Such a call would be a total shocker to most of the bean meal community given the current fundamental landscape.
Moving out to a weekly perspective, the log scale chart of the Dec contract shows last week’s break above this YEAR’S key highs around 432-to-437 and the market thus far failing to sustain those gains. More interesting however is the “irregular” bear market correction count referenced above and labeled in the weekly log active-continuation chart below. Again, this count contends that the initial 5-wave 1st- or A-Wave decline of the new secular bear market from Feb’s 508.2 high ended not at 05-Oct’s 366.5 low, but at 29-Jun’s 374.6 low, with 05-Oct’s 366.5 low being the B-Wave “irregular” of the correction. Under such “irregular” circumstances, the C-waves of these corrections typically:
- take out the A-wave’s high,
- unfold in a trendy, 5-wave structure, and
- are often times 61.8% longer than the A-wave.
All three of these conditions have been met perfectly. Additionally, the 61.8% retrace of the entire 508.2 – 366.5 decline cuts across at 448.5. Last week’s high is 448.4!
Not to be missed in this peak/reversal-threat analysis is the understandable fact that market sentiment/contrary opinion levels have exploded. Indeed, at a current 91% reading reflecting a whopping 102K Managed Money long positions reportable to the CFTC versus only 10K shorts, the bullish skew reflected by our RJO Bullish Sentiment Index is typical of major peak/reversal-threat environments and warns of plenty of fuel for downside vulnerability. To mitigate this peak/reversal threat, all the market needs to do at this point is take out last week’s 448.4 high.
Lastly, the monthly log active-continuation chart below still shows the market well within the massive peak/reversal process we introduced in 28-Feb’s Technical Blog, suggesting it was akin to that that followed 2012’s major top at 541. As recently discussed, this market put in an “outside MONTH up” in Oct (lower low, higher high and higher close than Sep’s range and close). IF there’s more upside correction to this year’s earlier swoon, which is entirely possible, the market needs to recoup last week’s 448.4 high. Until and unless such strength is resurrected and because of the technical elements discussed above, we believe the risk/reward metrics of maintaining a bullish policy “up here” have become questionable enough to warrant moving to at least a neutral/sideline position.
These issues considered, traders are advised to move to a neutral/sideline position with a recovery above 448.4 required to negate this call, reinstate the bull and expose potentially sharp gains thereafter. In the meantime, we will keep a keen eye out for proof of labored, 3-wave corrective behavior on recovery attempts that stall shy of 448.4 that could present one of the great risk/reward selling opportunities of the months and quarters ahead.