RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

Posted on Nov 11, 2022, 07:23 by Dave Toth

Yesterday’s impressive impulsive rally above 01-Nov’s 3928 high and our short-term risk parameter discussed in 03-Nov’s Technical Blog nullifies that day’s bearish divergence in short-term momentum and resurrects the suspected bear market rally introduced in 13-Oct’s Technical Blog.  This resumed strength identifies Wed’s 3750 low as the latest smaller-degree corrective low this market is now required to sustain gains above to maintain a more immediate bullish count.  Per such, this 3750 level serves as our new short-term risk parameter from which shorter-term traders with tighter risk profiles can objectively base non-bearish decisions like short-covers and resumed bullish punts.

The daily charts above and below show the past couple days’ resumption of the recovery from 13-Oct’s 3502 pivotal low, negation of last week’s bearish divergence in short-term momentum and the POTENTIAL for a bearish divergence in daily momentum.  The trend is clearly up on an intermediate-term basis and should not surprise by its continuance or acceleration.  A failure below 3750 will CONFIRM another divergence, arrest this uptrend and expose at least a steeper correction of the past month’s rally and possibly a resumption of this year’s major downtrend.  If the market has something broader to the upside in mind (i.e., if 13-Oct’s 3502 low completed a 10-month, 27% BULL market correction), then it’s imperative for this market to exhibit trendy, impulsive, sustained behavior higher and ultimately take out 16-Aug’s 4328 major corrective high and key long-term bear risk parameter.  In other words, the market needs to BEHAVE LIKE A BULL. A failure below 3750 will be a strike against such a bullish count while commensurately larger-degree weakness below 3502 will negate it, reinstate the secular bear and expose potentially major losses thereafter.

Stepping back even further, traders and investors are reminded of the technical and trading/investing matter of SCALE.  The long-term elements on which our major peak/reversal count that began with mid-Jan’s bearish divergence in weekly momentum remain, with the exception of some measures of market sentiment/contrary opinion like the Bullish Consensus (marketvane.net) and the American Association of Individual Investors Survey having understandably eroded to historically bearish levels.  This is supportive of a larger-degree bear market rally or possibly a resumption of the secular bull trend.  But as impressive as yesterday’s continuation of the past month’s rebound is, it remains well within the bounds of a correction within even the portion of this year’s downtrend from 16-Aug’s 4328 high, let alone this year’s entire 27% decline from Jan’s 4808 high.

To conclude a resumption of the secular bull market before it recoups 4328 would be presumptive as the past month’s recovery is not of a sufficient SCALE to break the major downtrend.  This said, the market HAS identified corrective lows and parameters precisely at 3750 and especially 3502 from which the risk of a bullish tack can be objectively based and managed.

These issues considered, longer-term players remain OK to maintain an interim bullish stance with a failure below 3750 required to threaten this call and warrant paring or neutralizing exposure.  Shorter-term traders whipsawed out of bearish exposure following last week’s short-term momentum failure are OK to return to a cautious bullish policy with a failure below 3750 required to negate this call and warrant its cover.  In lieu of at least such sub-3750 weakness, further and possibly accelerated gains are anticipated.  We will keep a keen eye on momentum in the days immediate ahead as the market approaches the area around the (4012-to-4025-area) 61.8% retrace of Aug-Oct’s decline where a confirmed bearish divergence in momentum will warn of another set of conditions similar to those that capped Jun-Aug’s bear market rally.

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