Posted on Dec 18, 2023, 07:34 by Dave Toth
Fri afternoon’s recovery above 05-Dec’s 169.50 minor corrective high and our short-term bear risk parameter discussed in 13-Dec’s Technical Webcast confirms a bullish divergence in short-term momentum that breaks at least the portion of the past couple months’ collapse from 29-Nov’s 173.875 next larger-degree corrective high and possibly the entire decline from 19-Sep’s 196.60 high. In this admittedly short-term regard then, the market has identified 07-Dec’s 162.40 low as one of developing importance and our new short-term parameter from which traders can objectively base non-bearish decisions like short-covers and cautious bullish punts.
On a broader scale, only a glance at the daily (above) and weekly (below) log scale charts of the Feb contract is needed to see that Fri’s bullish divergence in SHORT-term momentum is of an insufficient scale to conclude the end of a 5-wave sequence down from 19-Sep’s 196.60 high. Commensurately larger-degree strength above 29-Nov’s 173.875 larger-degree corrective high remains required to confirm a bullish divergence in DAILY momentum, conclude 07-Dec’s 162.40 low as the end of the major 1st-Wave down of a new secular bear market and start of a (2nd-Wave) corrective rebuttal higher that could be extensive in terms of both price and time. In effect, we believe this market has identified 173.875 and 162.40 as the key directional flexion points heading forward, with a recovery above 173.875 required for even longer-term commercial players to neutralize bearish exposure and prepare for a corrective rebound that could result in prices to the 179-to-183-area or higher and span weeks.
Potentially reinforcing a call for an extensive (2nd-Wave) corrective recovery is the fact that 07-Dec’s 162.40 low came within a couple cents of the Fibonacci minimum (164.475) 38.2% retrace of Jun’22 – Sep’23’s portion of the secular bull trend from 129.975 to 192.05 on a weekly log active-continuation basis shown below. This chart also shows the partial capitulation of long-&-wrong bullish exposure over the past two months by the Managed Money community indicated by the drop to 68% in our RJO Bullish Sentiment Index. The previous bullish skew is a typical technical element within major peak/reversal processes. Another typical element within such processes however is the often times extensive (2nd-wave or right-shoulder) corrective rebuttal to the initial counter-trend (1st-wave) as it takes TIME for the tremendous forces that have driven such a monstrous bull trend to erode and reverse. Such a corrective rebuttal is what we now must beware as a result of Fri’s bullish divergence in short-term momentum. A relapse below 162.40 is required to negate this call, reinstate the 2-month collapse and expose potentially sharp losses thereafter.
These issues considered, shorter-term traders have been advised to move to a neutral/sideline position or even cautious bullish stance with a failure below 162.40 negating this call, reinstating the bear and exposing potentially sharp losses thereafter. Longer-term commercial players are advised to pare bearish exposure to more conservative levels and jettison remaining exposure on a recovery above 173.875. Longer-term players also have the option of neutralizing ALL bearish exposure and acknowledging and accepting whipsaw risk below 162.40 in exchange for steeper nominal risk above 173.875.