Posted on May 03, 2023, 07:51 by Dave Toth

In 12-Apr’s Technical Blog we discussed the combination of that day’s bullish divergence in WEEKLY momentum and an impressive impulsive 5-wave rally from 20-Mar’s 64.36 low that warned that that rally may just be the A- or 1st-Wave start to a more protracted correction or reversal higher.  We also warned that on the heels of the prior 9-month bear trend, a more extensive B- or 2nd-wave corrective relapse was likely before any further correction or reversal higher.  This count remains a possibility until/unless the market relapses below 20-Mar’s obviously pivotal 64.36 low.

Given the extent of the past three weeks’ relapse however, we’d like to introduce an alternate, or perhaps preferred count that contends Mar-Apr’s 5-wave rally was the completing C-Wave of a bear market correction that actually started from 09Dec22’s 70.08 low as labeled in the daily log chart below.  This count contends that the sell-off from 18-Jan’s 82.66 high to Mar’s 64.36 low is only a 3-wave affair, suggesting that that decline was an “irregular” B-Wave (i.e. it broke below the 70.08 start of the correction from 09-Dec) within an entire 3-wave and thus corrective structure from 70.08 to 12-Apr’s 83.53 high.

Within such an “irregular” correction, it is common for the suspected C-Wave to take out the A-Wave high before failing miserably.  It’s also not uncommon for the C-Wave to approximate a length 61.8% longer than the A-Wave.  With 12-Apr’s 83.53 high falling just about a half-buck shy of the (84.07) 1.618 progression of Dec-Jan’s 70.08 n- 82.66 suspected A-Wave, these “irregular” correction guidelines have been met pretty well.

If this count is correct, then the decline from 83.53 would be considered the major C- of 3rd-Wave resumption of Jun’22 – Mar’23’s major bear trend that preceded it to new lows below 64.36.  Such would be a considerable event that would likely produce similar losses in heating oil and RBOB.

On a shorter-term basis, the 240-min chart below details this week’s accelerated decline that leaves Fri’s 76.92 high in its wake as the latest smaller-degree corrective high this market is now minimally required to recoup to break the past three weeks’ downtrend and resurrect a broader base/correction/reversal count higher.  Until and unless such strength is proven, further and possibly accelerated losses straight away are expected that could break 20-Mar’s key 64.36 low and reinstate the secular bear trend.

Finally and on a long-term basis, the weekly chart below shows the magnitude of the major downtrend from last Jun’s 123.68 orthodox high in which the past four months’ basically lateral chop easily falls within the bounds of a mere correction/consolidation ahead of the major downtrend’s resumption.  And with the Managed Money community still with its neck still waaaaay out on the bull side with a whopping 88% reading in our RJO Bullish Sentiment Index, it’s not hard to find fuel for downside vulnerability if the overall market forces the capitulation of this bullish exposure.

These issues considered, a bearish policy and exposure remain advised with a recovery above 76.92 required to negate this call and warrant its cover.  In lieu of such strength, further and possibly accelerated losses to new lows below Mar’s 64.36 could lie ahead.

RJO Market Insights

RJO Market Insights specializes in forward-thinking analysis, focused on potential market-moving events and dominant factors driving price discovery. Detailed fundamental and technical coverage across multiple commodity sectors is combined with objectively-constructed trade recommendations to provide an industry-leading product for R.J. O’Brien’s Institutional clients, commercial hedgers, introducing brokers and individual investors free of charge. Content is distributed in both text and audio formats, with specialized service offerings provided by account type.
For more information on RJO Market Insights, contact your broker or RJO representative.