RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

In last Tue’s Technical Blog following that day’s very minor momentum failure below 06-Jan’s 13.72 minor corrective low and mini risk parameter, we introduced the prospect that 07-Jan’s 14.15 high might have completed a textbook 5-wave Elliott sequence up from 01-Dec’s 12.23 low.  While the hourly chart of Globex day-session prices below does not yet reflect overnight’s weakness down to current prices around 13.51, this resumed short-to-intermediate-term weakness obviously reinforces this peak/correction/reversal threat that, because of historically frothy levels of bullish sentiment and the market’s recent close proximity to the extreme upper recesses of a SEVEN MONTH range, could leave it vulnerable to protracted losses in the weeks or even months ahead.

The hourly chart below shows that this overnight weakness now leaves TWO recent highs and resistance of importance at 14.01 and certainly 14.15 that the market must now recoup to render the past week’s sell-off attempt a 3-wave and thus corrective affair that would re-expose the broader bull.  Until and unless such strength is proven, we believe this market is particularly vulnerable to steep, if intra-seven-month-range weakness in the period immediately ahead and warrants not only paring or neutralizing bullish exposure, but new cautious bearish exposure.

While we’ve packed a lot of “stuff” into the daily log chart above, it’s the kind of stuff that techies live for, and most of all it identifies terrific and specific flexion points around which to toggle directional biases and exposure.  These key peak/correction/reversal-threat elements include:

  • the market’s not unexpected rejection of the upper-quarter of the 7-month range
  • a textbook 5-wave Elliott sequence up from 01-Dec’s 12.23 low and possibly a complete 3-wave and thus corrective sequence up from 09-Nov’s 11.93 low
  • nicely developing potential for a bearish divergence in daily momentum (confirmed below 30-Dec’s 13.34 low and key long-term risk parameter), and, perhaps most importantly
  • the latest 87% reading in our RJO Bullish Sentiment Index shown in the weekly log chart below.

Indeed, reflecting a whopping 126K Managed Money long positions reportable to the CFTC versus a paltry 19K shorts, this extent to which the Managed Money community has its neck sticking out on the bull side is tremendous fuel for downside vulnerability now that the market has rejected and identified specific and objective highs and resistance its got to recoup to reinstate the bull.  Until and unless this market recoups the short-term risk parameters at 14.01 and especially 14.15, sentiment/contrary opinion is considered an applicable technical tool and warns of potentially significant losses straight away.

Given the magnitude of the major, if intra-range rally from 09-Nov’s 11.93 low, the past week’s relapse and even further losses, within reason, cannot be ignored as just a larger-degree 4th-wave correction ahead of an eventual 5th-Wave resumption of this uptrend to eventual new highs above 14.15.  BUT IF this is what the market has in mind, then somewhere between spot and roughly the 13.40-to-13.20-area, the market needs to arrest this developing slide with a countering bullish divergence in short-term mo.  Until and unless this requirement is satisfied, and/or it recovers above at least 14.01, further and possibly steep losses straight away should not surprise.

These issues considered, shorter-term traders have been advised to neutralize all bullish exposure following last week’s failure below 13.72 and are further advised to first approach any bounce to the 13.60-area OB as a corrective selling opportunity with a recovery above 14.01 required to negate this call and warrant its cover.  Longer-term commercial players have been advised to pare bullish exposure to conservative levels and jettison all remaining exposure on a failure below 13.34.  This technical condition provides an acute and favorable risk/reward opportunity for producers to initiate or add to last week’s recommended bear hedge strategies while end-users are advised to neutralize bull hedge strategies until the market nullifies the peak/reversal elements identified above.

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