Posted on Oct 03, 2022, 08:31 by Dave Toth

Fri’s break below 08-Sep’s 13.73 larger-degree corrective low and key risk parameter reinforces our peak/reversal count discussed in 23-Sep’s Technical Webcast and confirms 13-Sep’s 14.94 high as a key market-defined high that this market is now required to recoup to negate a bearish count that could have long-term implications.  Per such, 14.94 becomes our new long-term parameter from which longer-term commercial players can objectively base non-bullish decisions like long-covers and new bearish exposure.

On a shorter-term basis, Fri’s continued slide below last Wed’s 13.91 low leaves Fri’s 14.26 high in its wake as the latest smaller-degree corrective high and minimum level this market now must recoup to break the smaller downtrend from 14.94 and expose at least a corrective pop to this portion of the broader bear and perhaps resurrect a broader bullish count.  In this regard, 14.26 serves as our new short-term bear risk parameter from which shorter-term traders with tighter risk profiles can objectively rebase and manage the risk of bearish exposure recommended from the 14.26-area.

From a longer-term perspective, the significance of Fri’s failure below 08-Sep’s 13.73 larger-degree corrective low is that it confirms a bearish divergence in WEEKLY momentum and breaks Jul-Sep’s entire recovery attempt from 12.88 to 15.09 (14.94 basis Globex day-session prices).  The fact that this major momentum failure stems from the upper-quarter of this year’s range remains consistent with our major peak/reversal count that contends that 09-Jun’s 15.85 high completed a massive 5-wave Elliott sequence from 2019’s 7.91 low and is the start of a major, multi-quarter or multi-year reversal lower.  The extent and 5-wave impulsiveness of Jun-Jul’s 15.85 – 13.02 decline constitutes the initial 1st-Wave down of this major reversal, with Jul-Sep’s extraordinarily labored 3-wave recovery considered an extensive and not unexpected 2nd-Wave correction within tis major peak/reversal PROCESS that, if correct, now exposes the dramatic 3rd-Wave down of the reversal that would be expected to blow away 22-Jul’s 12.88 low.

A threat to or deferral of this bearish count stems from the fact that this market remains within the middle-half bowels of this year’s range where the odds of aimless whipsaw risk are still approached as high, warranting a more conservative approach to risk assumption.  And herein lies the rationale and importance of a tight but objective risk parameter like Fri’s 14.26 smaller-degree corrective high.  Until and unless this market recovers above at least 14.26 however and preferably 14.94, further and possibly accelerated losses should not surprise.

Finally, the monthly log active-continuation chart below shows the past few months’ peak/reversal-threat behavior amidst still-historically-frothy levels in our RJO Bullish Sentiment Index of Managed Money long exposure typical of such major peak/reversal behavior like that stemming from 2012’s 17.89 high.  “Extensive” (2nd-wave) corrective rebounds like this past Jul-Sep are typical of such major peak/reversal processes.  And now that the market has rejected/defined a larger-degree corrective high like 14.94, we have a very objective level from which to base the risk of a new bearish policy and exposure that could have long-term repercussions.

These issues considered, a bearish policy and exposure remain advised with a recovery above 14.26 required for short-=term traders to pare or neutralize exposure and commensurately larger-degree strength above 14.94 for longer-term commercial players to follow suit.  In lieu of such strength, further and possibly steep, sustained losses straight away should not surprise.

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.