RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

Overnight’s recovery above Fri’s 1.772 corrective high and our short-term risk parameter in the now-prompt May contract confirms a bullish divergence in short-term momentum.  This mo failure defines Mon’s 1.587 low as the end of a textbook 5-wave Elliott sequence down from 11-Mar’s 2.044 high and start of at least a larger-degree correction higher.  But for a number of ancillary reasons discussed below, a more protracted correction or even major reversal may be at hand until and unless the market mitigates such with a relapse below Mon’s 1.587 low that now serves as our new short-term but key risk parameter from which non-bearish decisions like short-covers and cautious bullish punts can be objectively based and managed.

CLEARLY, we cannot conclude a larger-degree base/reversal threat from evidence of only smaller-degree strength.  Indeed, commensurately larger-degree strength above 11-Mar’s 2.044 larger-degree corrective high and key risk parameter remains required to confirm a bullish divergence in momentum of a scale sufficient to, in fact, break the long-term downtrend.  However, the:

  • prospect that Mon’s 1.587 low completed a major 5-wave sequence down from 05Nov19’s 2.411 high amidst
  • historically bearish sentiment/contrary opinion levels not seen in at least FOUR YEARS
  • waning downside momentum on a major, weekly scale and
  • the market’s proximity to Mar’16’s 1.611 low

are factors that not only question the risk/reward merits of a continued bearish policy “down here”, but also warn us to beware of a base/reversal-threat environment that could be major in scope.  Again, commensurately larger-degree strength above 2.044 is required to expose another major base/reversal count like those from Mar’16, Apr’12 and Sep’09 shown in the monthly log chart below.  But until and unless the market relapses below Mon’s 1.587 low and short-term risk parameter needed to reaffirm the still-developing bear trend, traders are advised to pare or neutralize bearish exposure commensurate with their personal risk profile and prepare for at least a more extensive correction higher.  We will be watchful for proof of 3-wave, corrective behavior on a subsequent relapse attempt to present a favorable risk/reward opportunity from the bull side in the days/week ahead.

RJOF Editorial Team