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S-T Mo Failure Stems Bean Oil Bull; Premature to Conclude Top

Posted 01/13/2020 8:06AM CT | RJO Market Insights

The market’s relapse Fri below 31-Dec’s 34.38 corrective low and our short-term risk parameter discussed in 03-Jan’s Technical Blog confirms a bearish divergence in momentum.  This mo failure leaves 02-Jan’s 35.67 high in its wake as one of developing importance and the end of what looks to be a 5-wave Elliott sequence up from 02-Dec’s 30.40 low that is now prone to a correction of at least an intermediate-term scale.  Per such, this 35.67 high is considered our new short-term risk parameter from which non-bullish decisions like long-covers, pared bullish exposure and/or cautious bearish punts can now be objectively based and managed.

From a longer-term perspective however, this mo failure is of too small a scale to conclude anything more than an interim (prospective 4th-Wave) correction of Dec-Jan’s portion of the much broader and impressive reversal from last May’s 26.21 low.  Commensurately larger-degree weakness below at least former 32.44-area resistance-turned-support from early-Nov is required to jeopardize the impulsive integrity of a correction or reversal higher that is major in scope.

The weekly log chart above shows the magnitude of a 7-1/2-month uptrend that is impressive indeed.  Stemming from the extreme lower recesses of a FOUR YEAR range amidst historically bearish sentiment levels and a complete 5-wave Elliott sequence that dates from Apr’11’s 60.41 high, traders are advised not to underestimate the magnitude of correction/reversal environment that could see this market moving laterally-to-higher for years.

Now searching for flies in the bullish ointment and on the heels of Fri’s bearish divergence in admittedly short-term momentum, the list of threats to this long-term bullish count include:

  • the return to historically frothy (87%-area) levels in our RJO Bullish Sentiment Index
  • the market’s proximity to the upper recesses of the four year range and
  • 02-Jan’s 35.67 high that’s just a relatively few ticks away from the (36.06) 38.2% retrace of the secular 8-year bear from 60.41 to 26.21.

If a broader PEAK/correction/reversal threat is at hand however, significantly more peak/reversal behavior is required, not just a piddly week-and-a-half’s hiccup.  Specifically and short of a meltdown below our 32.44 longer-term risk parameter, we’re talking about an arguable 5-wave impulsive move down that could/should span weeks and perhaps to the 32-handle-area followed by proof of a corrective 3-wave rebuttal to that initial decline that could take another few weeks.  Until these conditions are met, longer-term traders are advised to first approach early-Jan’s momentum failure as another corrective buying opportunity ahead of at least one more (5th-Wave) round of new highs above 35.67.

These issues considered, shorter-term traders have been advised to move to a neutral/sideline position to circumvent the depths unknown of a suspected intermediate-term correction lower.  Strength above 35.67 is required to negate this count, reinstate the bull and expose potentially steep gains thereafter.  Long-term players are OK to pare bullish exposure to more conservative levels in exchange for whipsaw risk above 35.67, but a bullish policy and exposure remain advised until commensurately larger-degree weakness below 32.44 negates our bullish count and warrants a move to the sidelines.  We will be watchful for a correction-stemming bullish divergence in shorter-term momentum to reject/define a more reliable low, support and short-term risk parameter in the week or so ahead from which a resumed bullish policy by shorter-term traders can be objectively rebased and managed.

RJO Market Insights

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