Secular Heating Oil Bull Continues, Defines New S-T Risk

January 11, 2018 8:44AM CST

heating_oil_240min_chart

Overnight's break above 02-Jan's 2.0906 high establishes another new high for what is now a 2-YEAR bull from Jan'16's 0.8538 low and what we believe is the secular (bull) reversal of at least 2011 - 2016's major bear trend and very possibly the even broader 8-YEAR bear from Jul'08's 4.1500 all-time high. The trend is once again up on all scales and should be expected to continue and perhaps accelerate with Tue's 2.0375 smaller-degree corrective low being left in its wake as our new short-term risk parameter this market is minimally required to fail below to even defer the bull, let alone threaten it.

On a broader scale shown in the daily log scale chart below, commensurately larger-degree weakness below 07-Dec's 1.8597 next larger-degree corrective low and key risk parameter remains minimally required to threaten the major uptrend and long-term bullish count.
heating_oil_daily_chart
heating_oil_weekly_chart
It's typically not too hard to find threats to any suspected move, and the understandably historically frothy levels (91% currently) in our RJO Bullish Sentiment Index can be considered one of them. Indeed, with a whopping 102K Managed Money long positions reportable to the CFTC versus only 10K shorts, it's not hard to find fuel for downside vulnerability.

However, traders are reminded that sentiment/contrary opinion is not an applicable tool in the absence of a confirmed bearish divergence in momentum needed to stem the clear and present uptrend and reject a market-defined level from which non-bullish decisions can only then be considered objective. Herein lies the importance of identifying corrective lows and risk parameters like 2.0375. And until such weakness is shown, current frothy bullish sentiment won't inhibit further and possibly accelerated gains.

We state in the weekly chart above that the current 91% reading in the RJO BSI is the "highest since Jun'11". That's impactful. Scary even. But the reason we require an accompanying momentum failure to render sentiment "applicable" in navigating a reversal-threat environment is because of conditions like Nov 2010 shown in the weekly chart of diesel below. The RJO BSI posted a 93% reading, a level not seen since Sep 2000 nor seen since. The market had resumed a 2-year uptrend only a couple weeks earlier before ACCELERATING for another 50% run!

While we certainly want to keep our eye on market sentiment, technical focus during such clear and present and major uptrending circumstances remains squarely on MOMENTUM and levels like 2.0375 (tight) and 1.8597.
heating_oil_weekly2_chart
Finally, the monthly log scale chart shows the magnitude of the secular uptrend and our long-term bullish count introduced in 03Mar2016's Technical Blog. The 2-year bull has eclipsed the (1.9780) 61.8% retrace of 2011 - 2016's 3.3247 - 0.8538 bear market and is now engaging the (2.1244) 0.618 progression of Jan'16 - Jan'17's initial 0.8538 - 1.7551 rally from Jun'16's 1.3609 low (for what these "derived" levels are worth).

The market's upside potential remains as indeterminable and potentially extensive now as they were in early-Sep when the secular bull resumed above Jan'17's 1.7647 high. Having broken to another new high for the 2-year bull, ALL technical levels of merit currently reside only below the market in the form of prior corrective lows like 2.0375 and 1.8597 and former resistance-turned-support like the 1.9650-area. As merely derived levels like various "bands" and channel lines and imokus and even Fib progressions never have proven to be reliable ways to identify a level where a trend will stop (and they never will), if effect, there is no resistance. And needless to say, any references to this (or any) market being "overbought" are outside the bounds of technical discipline and just plain ridiculous.

These issues considered, a bullish policy and exposure remain advised with a failure below 2.0375 minimally required for shorter-term traders to move to the sidelines and even longer-term players to pare bullish exposure to more conservative levels to circumvent some of the risk of what we'd believe at that point to be a slightly larger-degree correction within the broader uptrend. In lieu of such weakness further and possibly accelerated gains should not surprise.

heating_oil_monthly_chart

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