RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

After 07-Apr’s bearish divergence in momentum below 2055 discussed in that day’s Technical Blog broke Mar’s uptrend, either a steeper correction of the Mar recovery attempt or a resumption of the secular bear market was exposed.  Less then two weeks on that weakness has culminated in the reaffirmation of the 6-YEAR secular bear market with yesterday’s break below 02-Mar’s 1869 low.  An important by-product of yesterday’s break below Mon’s 1892 low is the market’s definition of Tue’s 1953 high as the latest smaller-degree corrective high this market is now minimally required to recoup to even defer the bear, let alone threaten it.  In this regard 1953 becomes our new short-term risk parameter from which a continued bearish policy and exposure can be objectively rebased and managed.  Former 1880-to-1900-range support is considered new near-term resistance.

Jul '17 Cocoa 240 min Chart

Cocoa Daily Chart

This resumed bear nullifies the bullish divergence in weekly momentum below and obviously chalks up Mar’s recovery attempt as a larger-degree correction.  Given the magnitude and steepness of the decline from Apr’16’s 3240 high t0 02-Mar’s 1869 low this hardly comes as a surprise and such major bear trends have to slow down (via 4th-wave corrections) before ultimately exhausting themselves with a final (5th-wave) gasp.  But while that bullish divergence has been negated, the POTENTIAL for another one still exists.  On this scale however the market would have to recoup 21-Mar’s 2187 larger-degree corrective high and key long-term risk parameter to CONFIRM this divergence and, in fact, break the secular downtrend.

Cocoa Weekly Chart

Market sentiment remains understandably historically bearish and typical of major base/reversal-threat environments.  Traders are reminded however that sentiment is not an applicable technical tool in the absence of a confirmed bullish divergence in momentum needed to stem the slide and define a more reliable low, support and risk parameter from which any non-bearish decisions like short-covers can only then be objectively based and managed.  Herein lies the importance of even a short-term corrective high and risk parameter like 1953.  Until and unless the market recoups at least this level, the trend is down on all scales and is expected to continue and perhaps accelerate.

NOTHING ELSE MATTERS technically.  Not bearish sentiment; not “oversold” references (these NEVER matter); not even very, very interesting Fibonacci relationships like the fact that the resumed bear from Dec’15’s 3429 high is only five ticks away from the 1801 1.000 progression of 2011’s initial bear market collapse from 3775 to 1983.  IF these factors are going to contribute to a base/reversal condition, the market has simply got to prove it first with a recovery above 1953.

These issues considered, a bearish policy and exposure remain advised with a recovery above 1953 minimally required to threaten this call.  In lieu of such further and possibly accelerated losses remain expected as the market has posted its lowest prices since Sep 2007 with virtually no levels of any technical merit below it.  In essence there is no support.  Currently, the ONLY levels of any technical merit lie above the market in the forms of former 1900-area support-turned-resistance and Tue’s 1953 corrective high.

Cocoa Monthly Chart

RJO Market Insights

RJO Market Insights specializes in forward-thinking analysis, focused on potential market-moving events and dominant factors driving price discovery. Detailed fundamental and technical coverage across multiple commodity sectors is combined with objectively-constructed trade recommendations to provide an industry-leading product for R.J. O’Brien’s Institutional clients, commercial hedgers, introducing brokers and individual investors free of charge. Content is distributed in both text and audio formats, with specialized service offerings provided by account type.
For more information on RJO Market Insights, contact your broker or RJO representative.