Put "Obvious" Crude Oil Collapse in Perspective | RJO Futures

March 9, 2017 10:17AM CST

APR CRUDE OIL

There is no question at all that the extent and impulsiveness of yesterday/today's collapse below our key 51.22 longer-term risk parameter mitigates any broader bullish counts- at least for the time being- and exposes a longer-term correction or reversal lower.  Per any broader bearish count, 02-Mar's 52.54 low is considered the end of an initial (1st-Wave) decline the market now must sustain losses below to maintain the impulsive integrity of "something bigger" to the bear side.  Overnight's 50.84 high detailed in the 240-min chart below serves as the latest smaller-degree corrective high that may be used as a short-term risk parameter to any non-bullish decisions, but given the sharp jump in volatility such a tighter risk parameter comes squarely in exchange for whipsaw risk.

Crude Light 240 Chart

Crude Light Daily Chart

We had been of the opinion that the merely lateral and shallow chop from 03-Jan's 55.24 high gave odds to this price action being bull-market-corrective.  The past couple days' collapse obviously shifts this call to either a steeper correction OR major reversal lower.  This said, it is worth keeping this decline in perspective on the heels of the major uptrend from Feb'16's 26.05 low.  IF "something bigger" to the downside is developing, then it is imperative that this market sustain trendy, impulsive behavior lower following the past couple days' unhinging.  A bullish divergence in momentum from the 49.25-to-48.50-range shown in the daily log close-only chart below, let alone a recovery above our new long-term risk parameter around 52.54/52.61 will threaten and then negate a broader bearish count.

48.57 is the 50% retrace of Nov-Feb's 43.32 - 54.45 rally while 49.27 is the 1.618 progression of Dec-Jan's 54.06 - 50.82 decline from 23-Feb's 54.45 high.  Still a consideration is a bullish count that contends Jan-Feb's rally to a new high at 54.45 is a B-Wave "irregular" of a correction that actually began with 28-Dec's 54.06 high.  The current, trendy, impulsive collapse from 54.45 would be the completing C-Wave of a correction that would then yield to the major uptrend from 2016's 26.05 low.

To raise the odds of such a bullish count however, the market would have to stem the clear and present downtrend with a confirmed bullish divergence in momentum somewhere along the line.  We would be watchful for such a mo failure from this 49.25-to-48.50-range.  In lieu of such a mo failure further and possibly steep losses should not surprise.

Crude Light Daily Chart

Crude Light Weekly Chart

In recent blog updates we have cited recent historically frothy levels in our RJO Bullish Sentiment Index (BSI) of the hot Managed Money positions reportable to the CFTC as a threat to the bull that could leave it extraordinarily vulnerable if the market failed on a broader scale below 51.22.  Consider this vulnerability now intact.  With 435K long positions to just 39K shorts, the market could force the capitulation of this bullish exposure and exacerbate the collapse straight away.  This week's RJO BSI of the Commitment of Traders data will reflect Managed Money positions as of the end of trading on Tuesday 07-Mar.  This means we won't know how much the past couple days' collapse cleaned house of this bullish exposure until the next RJO BSI update on Fri 17-Mar.  But we have no doubt that a good deal of the past couple days' meltdown was a result of the forced capitulation of this bullish exposure.

The market's ultimate inability to sustain Dec gains above the pivotal 51-handle-area clearly warns of weakness and vulnerability.  Thus far however the past couple weeks' "collapse" still pales in comparison to a full year's 112% rally.  And this was into the teeth of a fundamental argument that the world's awash in crude oil.  Yesterday's crude oil stocks report reminded the world once again of the gross over-supply of oil available.  And perhaps the bull will finally acquiesce with a commensurately larger-degree momentum failure needed to, in fact, break the major uptrend.  But on such a scale shown in the weekly log scale chart above or monthly log chart below, the market would have to break 14Nov16's 42.20 major corrective low.  Setback attempts shy of this level are arguably "just" corrections of Nov-Jan's portion of what is still arguably a major reversal of the secular bear market from May'11's 114.83 high to Feb'16's 26.05 low.

Granted, 03-Jan's 55.24 high is only a half-buck away from the (54.69) 50% retrace of that secular bear market from 2011's 114.83 high to Feb'16's 26.05 low, but this merely derived technical level is ill-suited to base a major peak/reversal count on without a momentum failure of a scale sufficient to break the major uptrend.  Yesterday's failure below 51.22 clearly confirms "a" momentum divergence, but this mo failure is of an insufficient scale to conclude the end of the past YEAR'S uptrend from a 26.05 low.  This is not to say such further, larger-degree weakness doesn't lie ahead.  But this takes us back to the bearish requirement and premise cited above calling for sustained, impulsive behavior lower now that the market has failed on at least a "decent" degree.

These issues considered, while further and possibly steep losses remain likely at least in the days and perhaps weeks ahead, we believe initiating directional exposure "down here" is a poor risk/reward bet with today's 50.84 corrective high the only objective risk parameter to such action.  A cautious bearish policy remains advised for shorter-term traders with strength above 50.84 required to step aside.  We would not be able to conclude the end of the slide from such a 50.84+ spike, but given that 02-Mar's 52.54 low/support and longer-term risk parameter is the ONLY technical level of any merit above 50.84 and this is too much risk for a shorter-term bear, 50.84 is the only legitimate risk parameter to protect a bearish position.  Longer-term players are advised to wait for a larger-degree corrective/consolidative recovery attempt and better-defined risk parameter before considering a new bearish policy.  In lieu of strength above at least 50.84 and preferably 52.54, further and possibly steep losses should not surprise.

Crude Light Monthly Chart

 

APR HEATING OIL

The past couple days' continued weakness reaffirms a longer-term bearish count with strength minimally above 07-Mar's 1.6139 smaller-degree corrective high required to threaten this call.  Ultimately the market would have to recoup levels above key former 1.6300-area support-turned-resistance to render the broader sell-off attempt from 30-Dec's 1.7395 high a 3-wave and thus corrective affair consistent with a long-term bullish count.

NY Gasoline Daily Chart

While the trend is clearly down however, the daily log close-only chart above shows that the decline from 30-Dec's 1.7395 high has yet to equal Oct-Nov's preceding "collapse" from 1.6573 to 1.4297 (i.e. 1.5006 is the 1.000 progression of Oct-Nov's 1.6573 - 1.4297 decline from 1.7395).  Against the backdrop of the past YEAR'S major uptrend then, it would be premature to conclude a major reversal lower rather than "another" Oct-Nov-type CORRECTION within the still-arguable major uptrend.  Indeed, to absolutely break the major uptrend the market still needs to provide commensurately larger-degree weakness below 14Nov14's 1.3737 corrective low.

NY Gasoline Weekly Chart

IF the decline from 30-Dec's 1.7395 high is another correction with the major reversal of 2011-2016's secular bear market as labeled in the monthly log chart below, we would expect the market to arrest the current downtrend with a confirmed bullish divergence in momentum somewhere in the range between the (1.5409) 61.8% retrace of Nov-Dec's 1.4297 - 1.7395 rally and that 1.5006 progression relationship.  As such a mo failure has yet to form, the trend is down on all practical scales and should not surprise by its continuation or acceleration.  Per such a bearish policy remains advised with strength above 1.6139 required to threaten this call enough to warrant moving to the sidelines.

NY Gasoline Monthly Chart

 

APR RBOB

The technical construct and expectations for RBOB are virtually identical to those detailed above for crude oil and diesel with Tue's 1.6798 smaller-degree corrective high close considered our new short-term risk parameter the market now is minimally required to recoup to stem the slide and expose a base/reversal threat.  In lieu of such strength further and possibly steep losses remain expected.

NY Gasoline Daily Chart

NY Gasoline Weekly Chart

It may prove noteworthy that the decline from Jan's 1.8978 high on a monthly log active-continuation chart basis below will not reach the same length (i.e. 1.000 progression) of Jun-Aug'16's BULL MARKET CORRECTION from 1.6997 to 1.4242 until the 1.5900-area, where we will be watchful for the requisite bullish divergence in momentum needed to threaten a broader bearish count and perhaps resurrect a major bullish one.

In sum, a bearish policy remains advised with a close above 1.6800 minimally required to threaten this call and warrant paring or neutralizing bearish exposure.  In lieu of such strength further losses remain expected.

NY Gasoline Monthly Chart

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