RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

In Fri’s Technical Webcast we discussed that day’s bearish divergence in short-term momentum that defines Thur’s 95.60 high as one of developing importance and our new short-term risk parameter from which non-bullish decisions like long-covers can be objectively based and managed by shorter-term traders with tighter risk profiles.  As always however, given the magnitude of the secular bull trend, such relatively minor weakness is of an insufficient scale to conclude anything more than an interim top and correction within the major.  As a result of the extent of today’s snappy rebound however, longer-term commercial players are advised to trail protective sell-stops to just below Fri’s 87.28 low because a host of ancillary factors discussed below.

Stepping back to take in the glory of the major bull trend from Apr’20’s 52.80 low in the weekly log chart below, this particular trend has been a model of perfection and performance.  With the exception of only a few smaller-degree corrective setbacks, this market has sustain gains above prior corrective low and initial counter-trend lows all along the way, making it one of the easiest bull markets to stay long in in recent memory.  As mentioned in recent updates, threats to the bull include:

  • historically frothy bullish sentiment
  • the prospect of a complete and major Elliott Wave sequence from last year’s low and, as we’ll show below,
  • the market’s encroachment on the extreme upper recesses and resistance of a range that dates from Jun 2012.
  • and add last week’s “outside WEEK” to this list (higher high, lower low and lower close than the previous week’s range and close).

Despite these threats (some of which have been on the board weeks), the market has yet to confirm a bearish divergence in momentum of a scale sufficient to threaten, let alone break the clear and present and major bull trend.  And we’re not sure if a relapse below Fri’s 87.28 low- which would render it an initial (A- or 1st-Wave) low- will d the trick either.  But given the above list of threats to the bull, as well as similar developing threats to a host of other correlating bull trends in ags, currencies, metals, cattle and sugar, we believe that a relapse below 87.28 would increase and reinforce the threat of a peak/reversal in cotton enough, and question the risk/reward merits of a bullish policy enough, to warrant a move to the sidelines by even longer-term commercial players.  While potentially exposing whipsaw risk (back above whatever high is left in the wake of such a sub-87.28 failure), such a more conservative tack would circumvent the depths unknown of either a larger-degree bull market correction or a major peak/reversal environment.

IF such a sub-87.28 relapse is what the market has in store, that would mean today’s rebound is a (B- or 2nd-Wave) corrective rebuttal to Thur/Fri’s break.  Per such, we would expect another bearish divergence in short-term mo to arrest this rebound at some level shy of last week’s 95.60 high and short-term risk parameter.  We will be watchful for exactly such a mo failure in the early days of this week and update traders accordingly as the risk/reward merits of even a shorter-term bear punt could be very favorable indeed.  Needless to say, a recovery above last week’s 95.60 high mitigates this peak/correction/reversal threat, reinstates the bull and exposes potentially steep gains thereafter.

The monthly log chart below shows the market’s close proximity to the 96-handle upper boundary of the past EIGHT YEAR lateral range.  If there’s a time and place to be increasingly watchful for a rollover, it is here and now.  And we’ve identified 87.28 as our new longer-term bull risk parameter as a gauge from which to manage the bull’s resolve “up here”.  At this juncture, we do not know that this bull isn’t poised to blow away the 96/97-handle-area and move to 100 or 125 or 150.  But a relapse below 87.28 would be inconsistent with such a more immediate bullish count and provide a tighter but objective opportunity for even longer-term players to pare or neutralize downside risk.

These issues considered, shorter-term traders have been advised to neutralize bullish exposure as a result of Thur and then Fri’s bearish divergences in shorter-term momentum.  We will be watchful for another bearish divergence in short-term mo from the 92.30-to095.60-range for a preferred and favorable risk/reward shorting opportunity.  Longer-term players remain advised to maintain a full and aggressive bullish policy and exposure with a failure below 87.28 required to threaten this call enough to warrant taking profits and move to a neutral/sideline position to circumvent the depths unknown of a correction or reversal lower that could be major in scope.  Needless to say, a recovery above 95.60 mitigates this peak/correction/reversal threat, reinstates the secular bull and exposes potentially huge gains thereafter.

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