Posted on Jan 30, 2023, 11:26 by Dave Toth

The markets failure today below 17-Jan’s 114.095 low and our short-term risk parameter confirms a bearish divergence in daily momentum.  This mo failure defines 19-Jan’s 116.08 high as the end of at least a 5-wave Elliott sequence up from 30-Dec’s 111.28 low as labeled in the 240-min chart below, and, as we’ll discuss below, possibly the end of a 3-month 5-wave rally that dates from 21-Oct’s 108.265 low.  Per such, this 116.08 high and 25-Jan’s 115.13 smaller-degree corrective high serve as our new short-term and mini risk parameters from which shorter-term traders can objectively base non-bullish decisions like long-covers and cautious bearish punts.

The daily chart of the contract above shows today’s bearish divergence in momentum that marks 19-Jan’s 116.08 high as one of developing importance and possibly the end of a 5-wave sequence from 21-Oct’s 108.265 low as labeled.  But to confirm such a complete 5-wave count, the market needs to confirm larger-degree weakness below 30-Dec’s 111.28 larger-degree corrective low and key long-term bull risk parameter.  As this risk parameter is back in the middle of the past quarter’s range however, it lacks practicality, so even longer-term institutional players are advised to take heed of today’s admittedly smaller-degree momentum failure as the prospective start to a more protracted (B- or 2nd-Wave) correction of Oct-Jan’s 108.265 – 116.08 (A- or 1st-Wave) rally within a major base/reversal threat OIR a resumption of the secular bear market.

If the expected relapse is just the (B- or 2nd-Wave) corrective rebuttal to Oct-Jan’s initial counter-trend rally, a more “extensive” correction in terms of both price and time (i.e., 61.8% retracement or more) should not surprise on the heels of a massive 2-YEAR bear market from Aug’20’s 140.13 all-time high.  Such a correction could easily result in a multi-week setback to the 111.21-area or lower but remain well within the bounds of a major base/reversal PROCESS.

Basis actual 10-yr yields shown in the daily log chart below, the inverse applies and warns of a (B- or 2nd-Wave) correction higher that could run to the 3.916%-area or higher.  A relapse below 190-Jan’s 3.319% low is required to negate this call and reinstate a broader peak/reversal threat in yields.

Lastly, the weekly chart of the contract shows the elements on which our major base/correction/reversal count is predicated:

  • a confirmed bullish divergence in weekly momentum amidst
  • recent record lows in the Bullish Consensus ( and,
  • an arguably complete and major 5-wave Elliott sequence down from Aug’20’s 140.13 high.

This chart also the developing potential for a countering bearish divergence in weekly mo that will be considered confirmed on a failure below 30-Dec’s 111.28 large-degree corrective low.

Against the backdrop of such a massive 2-YEAR bear market, an intervening and major corrective rebuttal to the initial counter-trend rally is not only not unusual, but it is also typical and expected as the myriad forces that drove such a massive bear market take TIME to erode or evaporate before the foundation for the broader reversal higher becomes apparent.

These issues considered, both short- and longer-term players are advised to move to at least a neutral/sideline, if not cautiously bearish stance ahead of a correction lower that could span weeks and retrace to the 112.00-area or lower with a recovery above 116.08 required to negate this call, reinstate the reversal and expose potentially steep gains thereafter.  With these technical issues in mind, Wed’s FOMC announcement and Fri’s Jan unemployment data may figure prominently in either reinforcing losses or the negation of this call above 116.08. 

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