Crude, Heating Oil Relapses Could Be Extensive

November 2, 2016 3:31AM CDT

DEC CRUDE OIL

The gross extent to which the market failed to sustain early-to-mid-Oct's breakout above both the Aug and Jun highs and resistance at 49.36 and 51.67, respectively, exposes the entire recovery from 03-Aug's 39.19 low as a 3-wave affair as labeled in the daily log active-continuation chart below.  Left unaltered by a recovery above 19-Oct's obviously key high at 52.22 and new long-term risk parameter, we're considering this 3-wave rally the B-Wave of a much broader "flat" correction dating from 09-Jun's 51.67 high that warns of a sharp, impulsive, even relentless return to the lower recesses of the 5-month range.

Crude Light Daily

The 240-min chart below details the developing downtrend and shows corrective highs at 50.06 and 47.35 that serve as our short-term and micro risk parameters to an interim bearish policy depending on one's personal risk profile.

Crude Light 240

Crude Light Weekly

Now that the market has clearly rejected a more immediate bullish count and reinforced the 51.67-to-52.22-range as a major resistant cap, the extent to which the Managed Money contingent has its neck sticking out on the bull side serves as fuel for downside vulnerability.  Indeed, at a still-frothy 85% reflecting 325K long positions reportable to the CFTC versus only 56.5K shorts shown in the weekly log chart above, the market's forced capitulation of this bullish exposure could leave a small and closing window for these bulls to exit, contributing to the collapse.

Finally, we want to remind traders of our very long-term count calling Feb-Jun's rally only the INITIAL A- or 1st-Wave of a major correction or reversal of the secular bear trend from at least May'11's 114.83 high and possibly from Jul'08's 147.27 all-time high.  A continuation of the merely lateral price action from 09-Jun's 51.67 high to even the 39-handle lower boundary of this range falls well within the bounds of a corrective/consolidative structure within this major base/reversal process.

These issues considered, a cautious bearish policy remains advised with strength above at least 47.35 and preferably 50.06 required to defer or threaten this call.  In lieu of such strength further and possibly steep losses to the 40-handle over the next month or so should not surprise.

Crude Light Monthly

DEC HEATING OIL

The technical construct and expectations for the heating oil market are virtually identical to those detailed above for crude with yesterday's 1.5791 high considered the latest smaller-degree corrective high and new short-term risk parameter the market is now minimally required to recoup to threaten this call.

NY Gasoline 240 min

NY Gasoline Daily

As with crude, the daily log scale chart above shows the market's gross failure to sustain early-to-mid-Oct gains above 19-Aug's 1.5797 key high and total rejection of the extreme upper recesses of the 5-month range defined by 09-Jun's 1.6316 high.  This relapse also exposes Aug-Oct's rally attempt from 1.3124 to 1.6400 as a 3-wave affair that is easily construed as the B-Wave of a 3-3-5 "flat" correction from the Jun high that, if correct, warns of a sharp, impulsive (C-Wave) collapse to the extreme lower recesses of the range to complete the correction and resurrect our long-term base/reversal count.

NY Gasoline Weekly

We would remind traders of this year's factors that suggest the new major trend is up despite this interim bearish call.  Early-year factors that contribute to this major BASE/reversal count include:

  • an arguably complete 5-wave Elliott sequence down from Apr'11's 3.3247 high labeled in the monthly log scale chart below
  • historically bearish sentiment nit seen since 1999
  • the decline from Apr'11's 3.3247 high coming within a nickel of the 1.000 progression of 2008-09's preceding 4.1500 - 1.1311 collapse and
  • a major bullish divergence in momentum.

A sharp, extensive (C-wave-type) decline to the lower recesses of the 5-month 1.6400 - 1.3124-range is likely to result from increasing and more emotionally driven fundamental evidence that only a confirmed bullish divergence in momentum will counter.  But if the market accommodates with such a mo failure, especially from the lower-quarter of the 5-month range, the risk/reward merits of a resumed bullish policy could be extraordinary.

In sum, a bearish policy remains advised with strength above yesterday's 1.5791 high required to threaten this count enough to warrant moving to the sidelines.  In lieu of such 1.5791+ strength further and possibly steep losses to the 1.40-to-1.30-range are expected.

NY Gasoline Monthly

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