This morning’s recovery above 19-May’s 3.37 high and short-term risk parameter discussed in last Fri’s Technical Blog confirms a bullish divergence in momentum. This is a technical fact that leaves last Fri’s 3.30-3/4 Globex intra-day low in its wake as the END of a corrective sell-off attempt from 30-Apr’s 3.40 high and start of the resumption of late-Apr’s uptrend that preceded it. Per such, we can conclude 3.30 as our new short-term risk parameter from which non-bearish decisions like short-covers and cautious bullish punts can now be objectively based and managed.
As the market remains within the past five weeks’ mere lateral range bounded on the top side by 23-Apr’s 3.43 high that’s still an arguable larger-degree corrective high and key risk parameter to a long-term bear count, it would be premature to conclude a broader base/reversal environment following proof of just smaller-degree strength above 3.37. The shorter-term fact remains however that a relapse below 3.30 is now absolutely required to reinforce a broader bearish count.
Looking at the daily chart above and on the heels of Jan-Apr’s major downtrend, it remains easy to still consider the past five weeks’ mere lateral chop as corrective/consolidative ahead of a resumption of that downtrend until and unless the market breaks above 23-Apr’s 3.43 high and key risk parameter on a Globex day-session basis. Looking at a daily close-only chart below however, today’s poke above 30-Apr’s 3.36-1/2 initial counter-trend high close not only confirms the bullish divergence in momentum we need to conclude the prospective end to Jan-Apr’s downtrend, the prospect that this entire decline is a complete 5-wave Elliott sequence is easier and clearer to count.
Given the magnitude of Jan-Apr’s meltdown, might the past month’s recovery attempt be just a slightly larger-degree bear market correction? Absolutely. No question. BUT, the market has now identified last Fri’s 3.30 smaller-degree corrective low as THE KEY level it is now minimally required to break to mitigate a broader base/reversal cont and resurrect the major bear.
Contributing mightily to a base/reversal count that could be major in scope are historically bearish levels in sentiment/contrary opinion. As we’ve discussed often, these levels simply don’t matter and are not applicable as long as the bear is maintaining its downtrend. The moment the downtrend is threatened or negated with a bullish divergence in momentum like may be unfolding TODAY, then the COMBINATION of this mo failure and grotesquely-skewed bearish sentiment becomes a powerful one from which non-bearish decisions like short-covers and cautious bullish punts are very favorable risk/reward opportunities.
Indeed, sentiment levels have reached historical levels not seen in at least nearly four years, and in the case of our RJO Bullish Sentiment Index of the hot Managed Money positions reportable to the CFTC, since 2003! The current 24% reading reflecting just 117K long positions to a whopping 362K shorts provides tremendous fuel for upside vulnerability should the over market force the capitulation of this huge bearish position via higher prices.
Another developing threat to the bear is the market’s failure thus far to sustain losses below Aug’16’s historic 3.15 low basis the prompt Jul contract. Granted, key former support around the 3.40-to-3.50-area remains as a new resistance candidate basis the Jul contract. It’ll be interesting to see how the bull “performs” in the days and weeks ahead and if the Jul contract also fails to sustain sub-3.40 levels. But we’ve seen similar long-term failures to sustain multi-year lows in markets like cattle, hogs, cotton, diesel, RBOB and silver that have seen steep, even relentless recoveries over recent weeks.
Is this what lies ahead for corn? Further gains above 3.43 will reinforce such a prospect. Until and unless the market fails below at least 3.30 however, and especially given historically bearish sentiment levels. the risk/reward merits of maintaining a bearish policy “down here” have become questionable at best. These issues considered, longer-term players are OK to maintain a bearish policy, albeit at a suggested more conservative level, with further proof of strength above 3.43 required to not only warrant neutralizing any remnant exposure, but also to reverse into a new bullish policy ahead of a base/reversal environment that we believe may be major in scope. Shorter-term traders have been advised to cover bearish exposure and are further advised to first approach setback attempts to 3.38 OB as corrective buying opportunities with a failure below 3.30 required to negate this call and warrant its cover.