RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

The market’s unsurprising failure yesterday below 20-Apr’s 92.17 corrective low and short-term risk parameter discussed in yesterday morning’s Technical Webcast confirms the bearish divergence in short-term momentum that leaves Fri’s 93.09 high in its wake as the END of a nice-looking 5-wave Elliott sequence up from 31-Mar’s 90.18 low.  This mo failure exposes what we suspect is a B- or 2nd-Wave correction of Apr’s 90.18 – 93.09 (suspected A- or 1st-Wave) rally within a broader, if intra-six-year-range base/reversal environment.  An important by-product of yesterday’s momentum failure is the market’s definition of Fri’s 93.09 high as our new short-term risk parameter from which non-bullish decisions like long-covers and cautious bearish punts can now be objectively based and managed.

If our interim bullish suspicions are correct, somewhere between spot and 31-Mar’s pivotal 90.18 low and key long-term risk parameter, the market will arrest this week’s short-term intermediate-term slide with a countering bullish divergence in short-term momentum.  We’ve noted the 50% and 61.8% retraces of Apr’s 90./18 – 93.09 rally at 91.63 and 91.29, respectively, as sort of guidelines around which to keep a keener eye on such a bullish divergence in mo that, if/when confirmed, would present what we believe is a favorable risk/reward opportunity from the bull side.  In lieu of such a relapse-stemming bullish divergence in mo and/or a recovery above 93.09, further and possibly accelerated losses should not surprise.

Needless to say, commensurately larger-degree weakness below 90.18 will negate this base/reversal threat, reinstate this year’s broader downtrend and expose potentially sharp losses thereafter.

From a longer-term perspective and for years, we haven’t been big fans of this market due to its position deep within the middle-half bowels of its massive, incessant SIX YEAR lateral range where the odds of aimless whipsaw risk have been approached as high.  There have been some shorter-term occasions however where shorter-term, more conservative technical setups have developed that have presented favorable risk/reward conditions.  We believe the combination of a bullish divergence in short-term momentum over the next week or two from some level north of 90.18 and currently historically bearish sentiment/contrary opinion levels could present such an opportunity from the bull side.

These issues considered and given the market’s position pretty much in the middle of the past month’s 93.09 – 90.18-range where the risk/reward merits of initiating directional exposure are poor, a neutral/sideline policy is advised for the time being.  But we will be keeping a keen eye on a bullish divergence in short-term mo in the week or two ahead for what could be a lucrative risk/reward opportunity from the bull side.

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