Posted on Jul 25, 2023, 07:07 by Dave Toth

The past week’s clear break above the past month’s resistance from the 13.77-to-13.83-area reaffirms the past month-and-a-half’s impressive performance and clear and present uptrend.  On a short-term basis, the hourly chart below details this key area of former resistance-turned-support at the 13.77-to-13.83-range that the market would be expected to sustain gains above per any broader and more immediate bullish count.  This continued strength also defines 12-Jul’s 13.25 low as a larger-degree corrective low and level the market would CERTAINLY be required to sustain gains above per any broader bullish count.  A failure below 13.75 would be an initial and admittedly smaller-degree sign of weakness and vulnerability while commensurately larger-degree weakness below 13.25 would break the multi-week rally and expose potentially significant downside vulnerability.  Per such, we’re defining 13.75 and 13.25 as our new short- and long-term parameters from which the risk of a bullish policy and exposure can be objectively rebased and managed.

The importance of these bull risk parameters at 13.75 and especially 13.25 becomes clear when we step back to consider the new crop Nov contract’s longer-term technical construct.  The daily (above) and weekly (below) log scale charts show the market’s current and potentially precarious residence at the extreme upper recesses of its past 15-month range amidst waning upside momentum.  The bearish divergence threat will be considered confirmed on this market’s failure to sustain gains above 13.25.  If the market has something much broader to the bull side in mind, it is now a pivotal time and price level (i.e. the extreme upper recesses of the 15-month range) for the bull to BEHAVE LIKE ONE by sustaining trendy, impulsive and increasingly obvious behavior to the upside.

We all know that the next few weeks are critical to the crop in which this market can either perform explosively to the upside or fail miserably, and we will navigate this directional debate, dilemma and challenge precisely around 13.75 to a lesser extent and 13.25 from a greater extent.  Looking at the arguably historically frothy 79% reading in our RJO Bullish Sentiment Index of the hot Managed Money positions reportable to the CFTC, it is clear what direction this community is betting on AND which may become fuel for downside vulnerability IF this market fails below 13.25.

From an even longer-term and inter-crop-year perspective, we would remind traders that the market has yet to provide the evidence to mitigate what we believe is the same type of multi-quarter peak/reversal process from 2021-through-2022 that unfolded between 2011 and 2012 and led to a massive multi-year bear market.  On this active-continuation basis, MINIMALLY, a recovery above 13Feb23’s 15.56 corrective high in the then-prompt Mar23 contract remains required to even defer, let alone threaten this multi-quarter peak/reversal count and new secular bear trend.  Does the Nov23 contract have the prospect for continued impulsive gains above 15.56 in the period immediately ahead?  Yep.  BUT IF THIS IS THE CASE, then it is imperative for the bull to BEHAVE LIKE ONE with sustained, trendy, impulsive and increasingly obvious behavior to the upside straight away.  A short-term failure below 13.75 will/should raise a doubting eyebrow while subsequent weakness below 13.25 will be INconsistent with a broader bullish count and resurrect a broader bearish count that could still have quarters or years to do.

These issues considered, a bullish policy and exposure remain advised with a failure below 13.75 required for shorter-term traders to take defensive steps and commensurately larger-degree weakness below 13.25 for longer-term commercial players to follow suit.  In lieu of such weakness, further and possibly accelerated gains straight away should not surprise.

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