Hi Samuel,
I don't see an obvious reason why you wouldn't be able to trace. Based on the amount of layers you have and the fact that you are projecting on the fly while editing, it's going to be a process of elimination.
I would recommend - in a new project, adding on the layer you want to edit (sub basin) and then add the layer you want to trace (parcels). At that point, does the status still report the projecting on the fly warning? Can you trace successfully?
If no, I would suggest to work with Esri Technical Support, who can help narrow it down further - Esri Support Contact Support (mostly because Geonet is really not a good forum for doing tech support). If you have any trouble making a case with Technical Support, let me know. Meanwhile, with the information I have, I'll try to reproduce the scenario and report back.
Thank you,
Scott