Momentum, Sentiment, Waves Conspire Against Diesel, RBOB

February 5, 2018 8:59AM CST

MAR HEATING OIL
Following up Fri's break below Wed's 2.0493 initial counter-trend low, today's break below 19-Jan's 2.0363 low confirms the bearish divergence in momentum necessary to conclude 26-Jan's 2.1362 high as one of developing importance and the end to the rally from at least 07-Dec's 1.8597 low. The past couple days' resumed weakness leaves Fri's 2.1005 high in its wake as the latest smaller-degree corrective high the market needs to recoup to stem the slide, render the sell-off attempt from the 26-Jan high a 3-wave and thus corrective affair and re-expose the secular advance. In lieu of at least such 2.1005+ strength a more protracted correction or reversal may be at hand given broader Elliott Wave and sentiment reasons we'll discuss below. In this regard Fri's 2.1005 high becomes our new short-term risk parameter from which non-bullish decisions like long-covers and cautious bearish punts can now be objectively based and managed.
heating_oil_240min_chart
heating_oil_daily_chart

In addition to the bearish divergence in momentum, the following factors would seem to contribute to a count for at least an interim correction lower, if not a more protracted setback:

  • the prospect that the entire rally from 21Jun17's 1.3609 low is a complete 5-wave Elliott sequence as labeled above
  • historically frothy levels in our JO Bullish Sentiment Index of the hot Managed Money position reportable to the CFTC and
  • the Fibonacci fact that the rally from last Jun's 1.3609 low came within half a penny of its (2.1315) 61.8% progression relationship to 2016's preceding 0.8538 - 1.7647 rally on a weekly log scale basis below.

Clearly, commensurately larger-degree proof of strength below 07-Dec's 1.8597 larger-degree corrective low and key risk parameter remains required to conclude a more significant peak/reversal-threat environment. We can't conclude a larger-degree correction or reversal after just smaller-degree evidence of weakness. But if this setback is just of a smaller-degree nature, we have a tight but objective risk parameter at 2.1005 the market can recoup to reinforce a broader bullish count.

In sum, shorter-term traders have been advised to pare all bullish exposure and are further advised to consider a cautious bearish policy from 2.0500 OB with a recovery above 2.1005 required to negate this count and warrant its cover. We anticipate further correction to former Nov-Dec resistance from the 1.9650-area that, since broken in late-Dec has been rendered a new support candidate. Longer-term players are OK to pare bullish exposure to more conservative levels with commensurately larger-degree weakness below 1.8597 required to jettison the position altogether.

heating_oil_weekly_chart

MAR RBOB
rbob_mar18_240min_chart
The technical construct and expectations for Mar RBOB are virtually identical to those detailed above for diesel with Thur's 1.9099 the end of the latest smaller-degree corrective high the market is now minimally required to recoup to mitigate a larger-degree correction or reversal lower, render the sell-off from 26-Jan's 1.9393 high a 3-wave and thus corrective affair and resurrect the secular advance. In this regard 1.9100 is considered our new short-term risk parameter from which non-bullish decisions like long-covers and cautious bearish punts from the 1.8500-area OB can be objectively based and managed.

Former 1.8200-area resistance from early-Nov until late-Dec's breakout is considered new support. A clear break below this area would be the next reinforcing evidence that 26-Jan's 1.9393 high completed a 5-wave Elliott sequence from 21Jun17's 1.2997 low ahead of a larger-degree correction that could easily span a couple months and reach the 1.65-area.
rbob_mar18_daily_chart
In sum, shorter-term traders are advised to move to a neutral-to-cautiously-bearish stance from 1.8500 OB with a recovery above 1.9100 negating this call, warranting its cover and re-exposing the secular bull. In lieu of such strength we anticipate further losses to the 1.8200-area, the break of which could extend those losses to the 1.68-to-1.65-range. Longer-term players are advised to pare bullish exposure to more conservative levels with a failure below 1.6844 still required to jettison the position altogether.

rbob_mar18_weekly_chart

MAR CRUDE OIL
crude_oil_240min_chart
Unlike diesel and gas the 240-min chart above and daily chart below show Mar crude still just languishing around the middle of the past couple weeks' range. A failure below 31-Jan's 63.667 low and our new short-term risk parameter is required to confirm the same kind of bearish divergence in momentum that stemmed the rallies in the rest of the complex. In lieu of such sub-63.67 weakness it'd be premature to conclude a more significant correction or reversal lower.

Nonetheless, the ancillary peak/reversal-threat factors discussed above are also lying in the weeds in crude oil:

  • an arguably complete 5-wave Elliott sequence from 21Jan17's 42.05 low
  • waning momentum (divergence confirmed below 63.67) 

crude_oil_daily_chart

  • historically frothy bullish sentiment not seen for nearly four years and
  • the Fibonacci fact that the rally from last Jun's 42.05 low came within a quarter of its (66.91) 0.618 progression relationship to 2016's 26.05 - 55.24 rally on a weekly log scale basis below.

A bullish policy remains advised with a failure below 63.67 required for shorter-term traders to move to the sidelines and longer-term players to pare bullish exposure to more conservative levels. Needless to say a recovery above 25-Jan's 66.66 high will mitigate any peak/reversal-threat concerns and reinstate the secular uptrend.

crude_oil_weekly_chart

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