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Agricultural

Retrenchment Risk After S-T Mo Failure Stems Impressive Cattle Run

Posted 11/14/2019 11:47AM CT | RJO Market Insights

Yesterday’s break below 06-Nov’s 118.20 initial counter-trend low confirms a bearish divergence in momentum and defines 04-Nov’s 120.325 high as one of developing importance and possibly the end of an impressive 5-wave Elliott sequence from 09-Sep’s 98.20 low.  TO THIS POINT, the sell-off attempt from that 120.325 high is only a 3-wave affair.  But until and unless this market recoups at least Tue’s 119.975 high, there’s no way to know yesterday’s break isn’t the 3rd-Wave of a more dramatic correction or reversal lower.  Per such, we are identifying 120.35 as our new short-term risk parameter from which non-bullish decisions like long-covers and cautious bearish punts can be objectively based and managed.

Needless to say, this momentum failure is of too minor a scale to CONCLUDE the end of the past couple months’ extensive, impressive rally.  Given the uninterrupted nature of this rally, we do not pretend to know or theorize on whether 04-Nov’s 120.325 high completed a 5-wave Elliott sequence that would expose a more protracted correction lower.  But we know with specificity what the market has to do to confirm this month’s setback as a mere (4th-wave) correction ahead of a (5th-Wave) resumption of the bull:  RECOUP 120.35.  Until and unless such objective strength is shown, and especially on the heels of such a huge and, frankly, easy bull trend, traders are advised to err on the side of a more conservative approach to risk assumption and swap deeper and unknown nominal risk lower for specific whipsaw risk above 120.35.

Another reason for our concern regarding a move to a more conservative approach to risk assumption is the market’s return to the middle of the middle-half bowels of this market’s 10 YEAR historical range shown in the monthly log chart below.  Such range-center environs are fertile ground for aimless whipsaw risk.

These issues considered, traders are advised to move to a neutral-to-cautiously-bearish policy at-the-market (118.00) with a recovery above 120.35 required to negate this call, warrant its cover and resurrect the broader bull and a resumed bullish policy.  In lieu of such 120.35+ strength, lateral-to-lower prices should not surprise straight away and for an indefinite period ahead.

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