Posted on Jan 04, 2024, 08:36 by Dave Toth

In just yesterday’s Technical Webcast, we discussed the Mar contracts poke to a new contract high above the past MONTH’S resistance-turned-support around the 17.85-to-17.74-area the market’s need/requirement to sustain gains above at least 28-Dec’s smaller-degree corrective low and short-term bull risk parameter at 17.39 needed to maintain a more immediate bullish count.  The 240-min chart below shows the market’s failure to do so, confirming a bearish divergence in daily momentum that, for longer-term reasons we’ll discuss below, warns of a more protracted peak/reversal threat until/unless negated by a recovery above yesterday’s 18.14 intra-day high.  Per such, we’re identifying 18.14 as our new short-term but key parameter from which shorter-term traders with tighter risk profiles can objectively base non-bullish decisions like long-covers and cautious bearish punts.

On a broader scale, commensurately larger-degree weakness below 05-Dec’s larger-degree intra-day low at 17.07 and/or that day’s 17.10 corrective low close remains required to confirm a bearish divergence in WEEKLY momentum, break the longer-term uptrend from at least 06-Nov’s 16.065 low close and reinforce a peak/reversal count that could be major in scope.  Indeed, by taking out 24-Nov’s 17.85 high close and intra-day high, the bull had every opportunity to run.  It’s failure to do so, even on an admittedly short-term basis, cannot be ignored as an early peak/reversal threat until/unless negated by a recovery above this week’s high.

Contributing to this peak/reversal count are egregiously frothy levels of bullish sentiment/contrary opinion as evidence by a 6-YEAR high of 95% in our RJO Bullish Sentiment Index reflecting a whopping 4,089 Managed Money long positions reportable to the CFTC versus only 203 shorts.  The extent to which this community has its neck sticking out on the bull side is fuel for potentially major downside vulnerability if the overall market forces the capitulation of this historically bullish skew.  Such downside risk will be reinforced upon commensurately larger-degree weakness below 05-Dec’s 17.07 larger-degree corrective low and key long-term bull risk parameter.

Lastly and also contributing to a peak/reversal threat that could be major in scope is this market’s proximity to and flirtation with the upper-quarter of this market’s massive but lateral historical range shown in the monthly log active-continuation close-only chart below.  If there’s a time and place to be leery about a longer-term bullish policy and exposure, it is here and now.

These issues considered, shorter-term traders have been advised to move to a neutral/sideline position to circumvent the depths unknown of a correction or reversal lower.  A recovery above 18.14 is required to negate this call, reinstate the bull and warrant a return to a cautious bullish stance.  We will be watchful for labored, 3-wave behavior on a subsequent recovery attempt and a rebound-stemming bearish divergence in momentum from a level shy of 18.14 for a favorable risk/reward opportunity from the bear side.  Longer-term commercial players are advised to pare bullish exposure to more conservative levels and jettison remaining exposure on a failure below 17.07 that would reinforce odds of a potentially significant reversal lower.

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