Posted on Dec 06, 2023, 08:08 by Dave Toth

Overnight’s continued decline, this time below Mon’s 24.58 low, reaffirms the developing downtrend from 07-Nov’s 28.14 high that we believe is the embryonic stage of a peak/reversal threat that could be massive in scope.  The important by-product of this latest spate of weakness is the market’s definition of Mon’s 25.98 high as the latest smaller-degree corrective high this market is now minimally required to recoup to confirm a bullish divergence in short-term momentum, complete an initial 5-wave Elliott sequence down and expose what would be a suspected 2nd-Wave corrective rebuttal to the past month’s decline within a broader peak/reversal process.  Per such, we’re defining 25.98 as our new short-term parameter from which the risk of a bearish policy and exposure can be objectively rebased and managed.

On a broader scale, our major peak/reversal count remains predicated on the unique and compelling combination of:

  • a confirmed bearish divergence in WEEKLY momentum below 04-Oct’s 25.28 larger-degree corrective low amidst
  • understandably historically extreme bullish sentiment/contrary opinion level
  • textbook complete 5-wave Elliott sequences from:
    • 29-Jun’s 22.06 low to 07-Nov’s 28.14 high
    • Sep’22’s 17.19 low to 07-Nov’s 28.14 high, and, arguably
    • Apr’20’s 9.21 low to 07-Nov’s 28.14 high where
    • the rally from Sep’22’s 17.19 low came within 21 ticks of the (28.35) 0.618nprogression of the net distance of major Waves-I-thru-III from 9.21 to 20.69, and
  • the market’s proximity in the upper-quarter of its massive but lateral range over the past 12 years shown in the monthly log chart (bottom).

IF this major peak/reversal call is wrong, all the bull needs to do is take out 07-Nov’s 28.14 high and our key long-term bear risk parameter.  Until and unless such strength is shown, we believe this market is in store for a major, multi-quarter or even multi-year reversal lower into a new secular bear market.

An interim challenge will be navigating the prospective 2nd-Wave corrective rebuttal to Nov-Dec’s initial 1st-Wave that is typical of virtually all major peak/reversal processes as the forces that have driven the secular bull market are unlikely to evaporate quickly and lead to a sharp, sustained move south right out of the gate.  Herein lies the importance of a smaller-degree corrective high and short-term but key bear risk parameter like 25.98, the recovery above which that will break this initial slide and expose that corrective rebound that could be extensive in terms of both price (i.e. a 61.8% retrace) and TIME.

These issues considered, a bearish policy and exposure remain advised with a recovery above 25.98 required to arrest this initial decline and warrant a move to a neutral/sideline position to circumvent the heights unknown of the then-expected 2nd-Wave correction higher.  In lieu of such 25.98+ strength, the trend remains down and should not surprise by its continuance or acceleration straight away.

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.