RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

In last Tue’s Technical Blog following that morning’s bullish divergence in short-term momentum above 06-Oct’s 324.6 corrective high and short-term risk parameter, we discussed the developing factors that suggest the brunt of the major 5-month collapse from 12-May’s 428.5 high in the Dec contract are behind us and that any further losses may come very grudgingly, if at all.  On a short-term basis, the hourly chart shows yesterday’s continuation of the recent rebound leaving Thur’s 321.7 low in its wake as the latest smaller-degree corrective low the market needs to sustain gains above to avoid confirming a bearish divergence that will stem this recovery at yesterday’s 331.7 high.  In this regard, this 321.7 low serves as our new short-term risk parameter from which non-bearish decisions like short-covers can be objectively rebased and managed.

What’s interesting to note above the recent recovery attempt from 13-Oct’s 309.3 low is its seeming trendy, impulsive 5-wave sub-division.  This is an basic Elliott tenet, “theoretically” at least, that suggests this rally attempt is only the initial (A- or 1st-Wave) component of a correction or reversal that has further to go.  A relapse below 321.7 will break this rally attempt, BUT IF the market labors in a 3-wave corrective setback that bottoms at a level above 13-Oct’s 309.3 low, the risk/reward merits of flipping around to a bullish policy could be very favorable and opportunistic indeed per some longer-term factors discussed below.

From a longer-term perspective, only a glance at the daily chart above and weekly log chart below is needed to see the magnitude of the major 5-month decline that requires commensurately larger-degree strength to reverse it and a bearish policy.  In recent updates we have identified early-Sep’s 335-to-347-area as a hugely important former support-turned-resistant area the market needs to recoup to break the major downtrend and expose a major correction or reversal higher.  We’ve specified 14-Sep’s 346.4 Globex day-session high as THE proverbial line in the sand, the recovery above which will expose a correction or reversal of the entire 428 – 309 decline to level indeterminately higher.  In lieu of such strength and unless the factors we discuss below develop further, the past couple weeks’ rebound is easily discernible as just another correction within the major downtrend to eventual new lows below 309.3.

HOWEVER, the compelling ancillary evidence warning of the early rumblings of a base/reversal count that could prove extensive include:

  • the prospect that the entire 428.5 – 309.3 decline is a complete 3-wave Elliott sequence as labeled above with
    • the prospective C-Wave down from 02-Jul’s 392.7 high coming with 2-bucks of the (311.2) 1.000 progression of the initial A-Wave decline from 428.5 to 24-Jun’s 347.0 low
  • market sentiment/contrary opinion levels that have understandably collapsed to historically bearish levels typical of basing environments, and, most importantly…..
  • …the market’s nibble this month on the lower-quarter of its massive historical lateral range shown in the monthly log chart below.

TO BE SURE and as happened in 2014 AND 2015 during the 2012 – 2016 secular bear market, it took the bear a year-and-a-half to slow down before reversing.  But corrective rebounds within that slowdown PROCESS were extensive.  And after 2016’s initial counter-trend spike higher, the market languished for FOUR YEARS with a multitude of sell-off attempts into the lower-quarter of the range.

We are not calling for a major bottom anytime soon.  But the point raised by these listed factors is that it won’t take much at this point to start to question the risk/reward merits of a continued longer-term bearish policy “down here”.  And traders are advised to act accordingly by paring down previously recommended aggressive bearish policy to a more conservative approach and to keep a keener eye on the smaller-degree proof of bullish behavior that could be building blocks for a base/correction/reversal count that could expose surprisingly steep rebounds that could span weeks or even months.

These issues considered, a bearish policy remains advised for longer-term commercial players with a recovery above 346.4 still required to negate this call and warrant its cover.  If the market survives a 3-wave corrective retest of 13-Oct’s 309.3 low in the week or two ahead, this exposure should be pared to more conservative levels.  A neutral/sideline position remains advised for shorter-term traders with a 3-wave correction to the 320-to-318-area stemmed by another bullish divergence in short-term mo presenting a favorable risk/reward opportunity from the bull side.  We anticipate a bearish divergence in short-term momentum below 321.7, but whether the market collapses to new lows below 309.3 or pulls up shy of that key low will provide some compelling price action to trade from in the week or two ahead.  Stay tuned.

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