Technicals Continue to Conspire Against Energies; Downside Could be Severe

July 17, 2018 1:32PM CDT

AUG HEATING OIL
Yesterday's break below Thur's 2.0810 low not only reaffirms the bearish count discussed in 11-Jul's Technical Webcast, but also contributes to a peak/reversal-threat environment that could be massive in scope. As a direct result of yesterday's resumed slide, the 240-min chart shows that the market has defined Fri's 2.1488 high as the latest smaller-degree corrective high this market is now minimally required to recoup to threaten this bearish count. In this regard 2.1488 is considered our new short-term risk parameter from which an advised bearish policy and exposure can be objectively rebased and managed by shorter-term traders with tighter risk profiles.
Heating Oil 240 Min Chart

On a daily log scale basis, the chart below shows yesterday's break below 18-Jun's 2.0658 initial counter-trend low that exposes the new long-term trend as down and leaves 10-Jul's 2.2332 high in its wake as the next larger-degree corrective high and key long-term risk parameter this market is required to recoup to render the sell-off attempt from 17-May's 2.3069 high a 3-wave and thus corrective structure consistent with a secular bull market. In lieu of such 2.2332+ strength thyere's no way to know the decline from that high isn;t the dramatic 3rd-Wave down of broader bearish sequence that would be evidenced by increasingly trendy, impulsive, even relentless losses straight away.
Heating Oil Daily Chart
Heating Oil Weekly Chart

On an even long-term scale shown in the weekly (above) and monthly (below) log scale chart, the peak/reversal-threat evidence gets even more compelling and convincing. Yesterday's break below mid-Jun's initial counter-trend low confirms a bearish divergence in WEEKLY momentum. Combined with the HIGHEST BULLISH CONSENSUS (77%) IN 10 YEARS and the Fibonacci fact that the rally from Aug'16's 1.2466 corrective low came within a penny of equaling (i.e. 1.000 progression) Jan-Jun'16s preceding 0.8538 - 1.5848 rally, we believe these facts warn of a major correction or reversal lower that could span MONTHS OR EVEN QUARTERS and project to at least the 1.80-to-1.75-range marked by former key resistance-turned-support from Jan'17. And a break below the 1.75-area would arguably END the 28-month bull market from Jan'16's 0.8538 low and expose indeterminable losses thereafter.

These issues considered, a full and aggressive bearish policy and exposure are advised with strength minimally above 2.1488 required for shorter-term traders to step aside and longer-term players to pare bearish exposure to more conservative levels. Commensurately larger-degree strength above 2.2332 is required to negate this call and re-expose the secular bull to new highs above 2.3069. In lieu of such strength we anticipate further and possibly accelerated losses straight away with former 2.1000-area support considered new near-term resistance. A move to the 1.80-to-1.75-area in the months ahead should not surprise.
Heating Oil Monthly Chart

AUG RBOB

RBOB Aug '18 240 Min Chart

While Aug RBOB has yet to break 21-Jun's 1.9835 initial counter-trend low, yesterday's obliteration of Thur's 2.0438 low certainly reaffirms the developing downtrend from last week's 2.1749 high and leaves Fri's 2.1181 high in its wake as the latest smaller-degree corrective high the market is now minimally required to recoup to stems the slide and threaten our broader bearish count. IN this regard Fri's 2.1181 high is considered our new short-term risk parameter from which a still-advised bearish policy and exposure can be objectively rebased and managed by shorter-term traders. Commensurately larger-degree strength above 2.1750 remains required to raise the odds that the sell-off attempt from 22-May's 2.2686 high is a 3-wave and thus corrective affair consistent with a still-developing secular advance.
RBOB Aug '18 Daily Chart
RBOB Aug '18 Weekly Chart

From a long-term perspective, the weekly (above) and monthly (below) log scale charts present similar historically frothy sentiment conditions to those described above for diesel that warn of what could be tremendous downside vulnerability. It may also prove important to note that the 27-month rally from Feb'16's 0.8975 low came within a nickel of Dec'08 - Apr'12's preceding rally from 0.7850 to 3.4278 on a monthly log scale basis below.

These issues considered, a bearish policy remains advised with strength above at least 2.1181 required to threaten this bearish call and warrant defensive action. In lieu of such strength, further and possibly accelerated losses are expected with the prospect of a multi-month decline to the 1.83-to-1.80-area (50% ret of Jun'17 - May'18 rally and former Dec'16 resistance-turned-support).

RBOB Monthly Chart

AUG CRUDE OIL
Finally and somewhat similarly, the 240-min chart below shows that yesterday's break below Thur's 69.23 low reaffirms the developing slide from 003-Jul's 75.27 high and leaves Fri's 71.66 high in its wake as the latest smaller-degree corrective high and new short-term risk parameter this market is now minimally required to recoup to stem the slide, confirm a bullish divergence in momentum and expose at least an interim corrective pop, let alone a resumption of the secular bull. In lieu of such 71.66+ strength at least the intermediate-term trend is down and should not surprise by its continuance or acceleration.
Crude Oil 240 Min Chart
Crude Oil Daily Chart

The difference between crude oil and diesel and RBOB is that crude established a new high for the secular bull in early-Jul. This leaves 18-Jun's 63.40 low in its wake as the major corrective low and risk parameter this market is still required to fail below to, in fact, break the major uptrend from even Jun'17's 42.05 low, let alone the secular bull from Feb'16's 26.05 low.

HOWEVER, the confluence of:

  • waning upside momentum on a WEEKLY log scale basis below amidst
  • historically frothy bullish sentiment not seen since Feb 2012's major high/peak/reversal and
  • • and arguably compete 5-wave Elliott sequence from Jun'17's 42.05 low

presents a peak/reversal threat that is absolutely textbook. And the crucially important by-product of the past couple weeks' slide and even yesterday's component of this slide is the market's definition of Fri's 71.66 smaller-degree corrective high and 03-Jul's 75.27 rejected high as SPECIFIC AND OBJECTIVE risk parameters the bull is quite simply required to recoup to threaten or negate a peak/reversal environment that could be major in scope.
Crude Oil Weekly Chart

Finally, and ever since Mar'16's base/reversal environment threatened the secular bear, we have targeted the 65-to-90-range to be leery of countering peak/reversal-threat behavior. A significant contributor to this resistance-range candidate was the 75-to-77-range that supported this market from Oct'11 until Nov'14's breakdown. The monthly log scale chart below shows the market's engagement of this resistance candidate.

To be sure, the market has provided nowhere near the weakness needed to conclude the break of even the past year's uptrend, let alone the bull from Feb'16's 26.05 low; so we may be jumping the gun a little bit with respect to long-term players. But give the extent and impulsiveness of the past couple weeks' decline however as well as historically frothy levels in our RJO Bullish Sentiment Index of the ho Managed Money positions reportable to the CFTC that haven't been seen in OVER SIX YEARS, we believe this market has become vulnerable to potentially protracted losses to the 60-to-55-range over a multi-month period. Strength above at least 71.66 is required to threaten this call with subsequent gains above 75.27 required to negate this count and reinstate the secular bull.

In sum, a bearish policy remains advised with strength above 71.66 required to defer or threaten this call enough to warrant paring or neutralizing bearish exposure. In lieu of such strength we anticipate further and possibly accelerated losses straight away.

Crude Oil Monthly Chart

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