Posted on Aug 18, 2023, 11:44 by Dave Toth

The market’s recovery today above 04-Aug’s 13.44 minor corrective high and our short-term risk parameter discussed in 07-Aug’s Technical Blog confirms a bullish divergence in short-term momentum and defines 08-Aug’s 12.82 low as the 5th-Wave end to the slide from 24-Jul’s 14.35 high.  As a result, 08-Aug’s 12.82 low becomes our new short-term parameter from which the risk of non-bearish decisions like short-covers can be objectively based and managed by shorter-term traders with tighter risk profiles.

Against the backdrop of our broader peak/reversal bear market count, this recovery is advised to first be approached as a mere (B- -r 2nd-Wave) correction within a broader move south.  If this count is correct, then we would expect a recovery-countering bearish divergence in short-term momentum somewhere between spot and 24-Jul’s 14.35 key high and long-term bear risk parameter, and perhaps somewhere around the areas of the (13.59) 50% retrace of Jul-Aug’s 14.35 – 12.82 decline or (13.77) 61.8% retrace.  Until and unless such a mo failure arrests this clear and present recovery however, these merely “derived” Fibonacci levels are NOT considered resistance or a reason to sell into this recovery (unless you’re a longer-term player and acknowledge and accept the risk of doing so to 14.35).

From a longer-term perspective, commensurately larger-degree strength above 24-Jul’s 14.35 high remains required to negate our long-term bearish count discussed in 31-Jul’s Technical Blog.  The 5-wave impulsive extent of Jul-Aug’s decline, rejection of the extreme upper recesses of the past year’s range in the Nov23 contract and and historically extreme bullish sentiment/contrary opinion levels remain as key elements to this bearish count.  It is very much worth keeping this longer-term bearish count in mind, for if/when the market arrests the current recovery attempt as a 3-wave and thus corrective affair, we would then anticipate a resumption of not only Jul-Aug’s downtrend to levels below 12.82, but also a resumption of the secular bear trend from 2022 highs to new lows below 11.30, similar to the corn market’s late-Jul/early-Aug collapse.

Finally, on an active-continuation basis, the weekly (above) and monthly (below) log scale charts show the same multi-quarter peak/reversal process from last year’s 17.84 high as that that warned of and accompanied 2012’s major top and reversal.  We’ve discussed this process since the extent and 5-wave impulsiveness of Jun-Jul’22’s initial counter-trend decline and the market has yet to produce the gains to negate it.  The Nov’23 contract needs to recoup at least 24-Jul’s 14.35 high to threaten the count that suggests the bean market is in a new secular bear market.  And on an active-continuation basis, the prompt contract needs to recoup Feb’s 15.56 high.

These issues considered, a bearish policy remains advised for longer-term commercial players with a recovery above 14.35 required to threaten this call enough to warrant moving to the sidelines.  Shorter-term traders with tighter risk profiles have been advised to move to a neutral/sideline position to circumvent the heights unknown of a suspected correction of late-Jul/early-Aug’s 14.35 – 12.82 decline.  We will keep a keen eye on any recovery-countering bearish divergence in short-term mo around the 13.50-to-13.77-area to present a preferred risk/reward opportunity to reset bearish exposure ahead of what could be protracted losses the rest of the year.

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.