Beware Rebound Within Major RBOB Peak/Reversal Process

October 29, 2018 8:43AM CDT

In last Wed's Technical Blog we discussed the potential long-term ramifications of the market's bearish divergence in WEEKLY momentum from a new high for the 33-month bull in any particular contract.  Indeed, in just a few short weeks this bearish divergence in momentum shown in the weekly log chart of the now-prompt Dec contract defines 03-Oct's 2.1474 high as the end of the uptrend from at least Jun'17's 1.2986 low.  This is a 16-MONTH uptrend broken in just three weeks.

Combined with historically frothy levels of bullish sentiment that, in the case of the Bullish Consensus ( haven't been seen in over 10 YEARS, this major mo failure warns of a peak/correction/reversal environment that could be major in scope as long as 03-Oct's 2.1464 high remains intact.

However, the forces that drove such a major bull aren't likely to evaporate so quickly such that an obvious reversal like we've seen the past few weeks will just keep going.  Rather and typically of peak/reversal processes, somewhere along the line traders should not be surprised by a corrective rebuttal to the Oct swoon that could be equally extensive in terms of both price AND time.  Per such we are keeping a keen eye on a sell-off stemming bullish divergence in even short-term momentum that could expose such a rebound.

Rbob Dec '18 Weekly Chart

Drilling down to a 240-min chart of the Dec contract below, the POTENTIAL for such a bullish divergence is developing, with the past few days' continued slide leaving Wed's 1.8587 high in its wake as the latest smaller-degree corrective high the market would be required to sustain losses below to maintain a more immediate bearish count.  Its failure to do so will confirm a bullish divergence in mo, stem the slide and expose at least an interim correction higher.

Per this base/correction threat are a couple Fibonacci relationships that are compelling.  First, we think its interesting that Fri's 1.7644 low was less than a quarter-cent from the (1.7666) 1.000 progression of the initial decline from 03-Oct's 2.1464 high to 12-Oct's 1.9067 low from 17-Oct's 1.9887 corrective high as labeled in the 240-min chart below.  Also, neighboring 1.7715 is the 38.2% retrace of the 16-month rally from Jun'17's 1.2986 low to 03-Oct's 2.1464 high shown in the weekly log chart above.  IF the market confirms a bullish divergence in short-term momentum above 1.8587, these Fib relationships and possible 3-wave (and thus corrective) decline from 03-Oct's 2.1464 high could mean a more significant rebound than even one within a broader peak/reversal-threat process.

These issues considered, the trend remains down on any practical scale and should not surprise by its continuance, with a recovery above 1.8587 required to stem the slide and expose a recovery that could be extensive.  Per this setup and while admitting the market has yet to confirm the bullish divergence in short-term mo, traders are advised to move to a neutral/sideline position for the time being.  Scalpers are OK to take a cautious punt from the bull side with a failure below Fri's 1.7644 low negating this call.

Rbob Dec '18 240 Minute Chart

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