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Continued RBOB Losses Expose Massive Peak/Reversal Threat

Posted 10/24/2018 7:51AM CT | RJO Market Insights

Rbob Nov '18 240 Minute Chart

Our analysis often times discusses technical and trading SCALE and the “commensurately larger-degree weakness” (in this case) required to differentiate between am interim correction within a still-ongoing trend and a larger-degree reversal.  In 08-Oct’s Technical Blog following that day’s bearish divergence in momentum below 01-Oct’s 2.0791 corrective low, we identified this mo failure as of a scale insufficient to conclude anything more than another interim correction within the 33-month secular bull trend.  After 2-1/2-more weeks of trendy, impulsive losses that eclipsed our 2.0220 longer-term risk parameter on 10-Oct, the market has failed below 16-Aug’s 1.8402 major corrective low that confirms a bearish divergence in WEEKLY momentum and breaks the uptrend from at least Jun’17’s 1.3159 low.  Combined with historically bullish sentiment not seen since at least 2012, this degree of weakness is now certainly commensurate with a peak/reversal environment that could be major in scope.

The weekly log scale chart below shows the market very quickly retracing nearly 38.2% (to 1.7823) of the 16-month rally from 1.3159 to 2.1500.  And as we’ll discuss below, a ton of former highs and resistance from the 1.77-to-1.67-range must be approached as a huge support candidate.  But a confirmed bullish divergence in momentum remains required to arrest what we believe is just the INITIAL (A- or 1st-Wave) of a correction/reversal PROCESS that is expected to include a corrective (B- or 2nd-Wave) rebuttal in the weeks or even months ahead that could be extensive in terms of both price and time within this process.

The 240-min chart above shows the past couple days’ resumption of the slide leaving Fri’s 1.9354 high in its wake as the latest smaller-degree corrective high the bear is now required to sustain losses below to maintain a more immediate bearish count.  Former 1.8800-area support is considered new near-term resistance.  A recovery above 1.9354 and our new short-term risk parameter is required to stem the slide and expose a correction higher that could be extensive and provide a favorable risk/reward trade from the bull side.  But from a very long-term perspective, the extent and impulsiveness of this month’s decline identifies 03-Oct’s 2.1500 high as one of monumental importance and one that might stand up for quarters or even years ahead.

Rbob Nov '18 Weekly Chart

Rbob Monthly Chart

The monthly log active-continuation chart above shows the former resistance-turned-support from the 1.77-to-1.67-range.  A sell-off-stemming bullish divergence in momentum anywhere between spot and this 1.77 – 1.67-range could expose a significant and opportunistic rebound.  However, this chart also shows an “outside MONTH” (higher high, lower low and lower close than Sep’s range and close) as well as the market’s rejection of the immediate area around the (2.2317) 0.618 progression of 2008-to-2012’s preceding 0.7850 – 3.4278 rally from Feb’16’s 0.8975 low.  Combined with historically frothy bullish sentiment and the major bearish divergence in momentum, all the elements typical of a major peak/reversal environment are present.

Now we just have to beware, acknowledge and prepare for a countering B- or 2nd-Wave corrective retest of the high.  And this will be gauged around a confirmed bullish divergence in momentum that requires a recovery above some recent corrective high.  Currently, Fri’s 1.9354 high serves as this short-term risk parameter.  And until such strength is proven, further and possibly steep losses should not surprise.

These issues considered and not wanting to chase new bearish exposure “down here”, a neutral-to-cautious-bearish policy remains advised with a recovery above 1.9354 stemming the slide and exposing a steeper corrective rebound.  Under the right circumstances a favorable risk/reward flip from the bull side may be the next play within the context of a major peak/reversal process that could be massive in scope, spanning quarters or even years until negated by a recovery above 2.1500.

Rbob Nov '18 Daily Chart

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