RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

Posted on Sep 09, 2022, 07:36 by Dave Toth

The market’s recovery overnight above last Fri’s 4020 smaller-degree corrective high and our short-term bear risk parameter discussed in Tue’s Technical Blog confirms a bullish divergence in short-term momentum and defines Wed’s 3883 low as the 5th-Wave END of the decline from 16-Aug’s 4328 high.  This momentum failure exposes what we suspect is a smaller-degree (2nd-Wave) correction of the recent 4328 – 3883 decline within this year’s major peak/reversal process.

In the hourly chart below we’ve identified the 38.2%, 50% and 61.8% retraces of this 4328 – 3883 decline at 4053, 4106 and 4158, respectively.  These merely “derived” levels are NOT considered resistance, but rather just “areas of interest” around which to be on the watch for a recovery-stemming bearish divergence in momentum needed to, in fact, break the interim uptrend, reinforce our long-term bearish count and present another favorable risk/reward opportunity from the bear side for shorter-term traders.  Until and unless such a bearish divergence in short-term momentum counters this recovery, it’s upside potential is approached as indeterminable, with commensurately larger-degree strength above 16-Aug’s 4328 key high and long-term bear risk parameter required to negate our specific bearish count altogether.  In the meantime however, the market has identified Wed’s 3883 low as a reliable low, support and short-term risk parameter from which shorter-term traders can objectively base non-bearish decisions like short-covers and cautious bullish punts.

The Fibonacci fact that overnight’s bullish divergence in short-term momentum stems from the (3888) 61.8% retrace of Jun-Aug’s 3639 – 4328 rally reinforces Wed’s 3883 low as one of developing interim importance.  In effect, the short-term trend is up within the still-arguable longer-term downtrend, with commensurately larger-degree strength above 16-Aug’s 4328 larger-degree corrective high required to flip the directional script to a bullish one.  For longer-term traders and investors then, this current recovery is advised to be approached as another corrective selling opportunity, with a recovery above 4328 required to negate this call and warrant the cover of any/all bearish exposure ahead of a larger-degree correction of Jan-Jun’s decline and possibly the resumption of the secular bull market.

Another interim bullish factor as a result of today’s bullish divergence in short-term momentum is the erosion to historically bearish levels in the Bullish Consensus (marketvane.net) and American Association of Individual Investors Survey shown in the weekly log chart below.  As long as the market is sustaining a simple downtrend pattern of lower lows and lower highs, sentiment/contrary opinion is not an applicable technical tool.  But while today’s momentum failure is only of a minor degree, the market as nonetheless identified a low at 3883 that its must now break to reinstate and reaffirm our longer-term bearish count.  Until and unless such weakness is confirmed, current extreme pessimism levels warn not to underestimate the market’s upside potential.

These issues considered, the market has identified 3882 and 4328 as the key directional triggers heading forward.  Traders/investors are advised to toggle directional biases and exposure around these levels commensurate with their personal risk profiles (i.e. short-term traders neutral-to-constructive while the market stays above 3883, long-term players/investors, bearish until the market recoups 4328).  We will keep a keen eye out for any countering bearish divergence in short-term mo that could/would present another favorable risk/reward selling opportunity for shorter-term traders.

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