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Energies

Energy Complex Range-Center Pendulum Shifting Higher

Posted 08/28/2019 10:40AM CT | RJO Market Insights

OCT CRUDE OIL

While the market remains below a number of earlier-Aug highs and resistance, the past couple days’ rebound is interesting because:

  • yesterday afternoon’s recovery above Mon’s 5.26 initial counter-trend high confirms a bullish divergence in short-term momentum
  • it stems from the immediate area around the (53.17) 61.8% retrace of early-Aug’s 50.52 – 57.47 rally that
  • renders the 57.47 – 52.96 sell-off attempt a 3-wave affair as labeled in the 240-min chart below.

Left unaltered by a relapse below yesterday’s 52.96 low, this 3-wave setback is considered a corrective/consolidative structure that warns of a resumption of early-Aug’s uptrend that preceded it.  Per such, traders are advised to move to a neutral-to-cautiously-bullish stance with yesterday’s 52.96 low our new short-term risk parameter from which to do so.

Taking a step back to consider the daily log scale chart below, the past couple weeks’ suspected 3-wave and thus corrective setback comes on the heels of Jul-Aug’s 60.94 – 50.52 decline that also is just a 3-wave event as labeled.  Combined with the market still respecting the (50.35) 61.8% retrace of Dec-Apr’s major 42.36 – 66.60 rally, it’s not hard to envision at least a continuation of the 50.60-to-60.94-range that has constrained it since 05-Jun or a breakout above this range’s 60.94 cap.  But noting once again the greater odds of aimless whipsaw risk typical of such range-center environs, any new bullish treading would be advised to be approached cautiously with reduced risk assumption.

A break above 13-Aug’s 57.47 high will reinforce this pendulum’s intra-range swing higher and expose a run at the upper recesses of the 50.60 – 60.94-range.

From an even broader perspective, the weekly (above) and monthly (below) log scale charts show the market’s position still deep within the middle-half bowels of not only the past year’s range, but also within the 147 – 26-range of the past 11 YEARS.  Such a “ranges-within-ranges” condition is advised to be approached as one with much greater odds of aimless whipsaw risk where trend-followers go to die.  We’ve discussed this condition for months now and the market has provided exactly the aimless lateral chop we feared would make for a treacherous trading environment that’s best avoided.  But if you are inherently involved with crude oil and must take a directional stance, we believe the factors discussed above now warrant a cautious bullish bias with a failure below 52.96 required to threaten this call enough to warrant its cover.  In lieu of such sub-52.96 weakness we anticipate further lateral-to-higher prices in the period immediately ahead.

OCT HEATING OIL

The technical construct and expectations for diesel are virtually identical to those detailed above in crude following today’s bullish divergence in short-term momentum above 1.8456 that leaves Mon’s 1.7973 low in its wake as the latest smaller-degree corrective low that renders the sell-off attempt from 13-Aug’s 1.8839 high a 3-wave and thus corrective event that warns of a resumption of early-Aug’s uptrend that preceded it.  The Fibonacci fact that that 1.7973 low was just 20 ticks from the (1.7993) 61.8% retrace of early-Aug’s 1.7450 – 1.8839 rally would seem to reinforce this bullish count.  Per such that 1.7973 lows serves as our new short-term risk parameter from which non-bearish decisions like short-covers and cautious bullish punts can be objectively based and managed ahead of an expected poke above 1.8839 and a possible run at the upper-quarter of the past quarter’s 1.7402 – 2.0181-range.

From a very long-term perspective, here too, like crude oil, this market remains smack in the middle of its historic, lateral, 11-YEAR range where the odds of aimless whipsaw risk are still advised to be approached as high.  The risk/reward merits of betting on a home-run-type trend in either direction are poor, so nothing more than attempting to hit singles with tight but objective risk parameters like 1.7973 is advised.

In sum, a neutral-to-cautiously-bullish stance is advised from current 1.8660-area prices with a failure below 1.7973 required to negate this call and warrant its cover.  In lieu of such sub-1.7973 weakness we anticipate further lateral-to-higher prices with a break above mid-Aug’s 1.8840-to-18870-area resistance reinforcing this count and a run at the 1.95-to-2.00-area.

OCT RBOB

While the scope of early-Aug’s plunge precludes us from ignoring this month’s labored recovery thus far as a (4th-Wave) correction ahead of a resumption of the broader downtrend from 11-Jul’s 1.7962 high, RBOB isn’t going anywhere that crude and heating oil aren’t, so we are biasing towards a bullish count that contends the selloff attempt from 13-Aug’s 1.5979 high is a 3-wave and thus corrective affair that warns of a resumption of early-Aug’s uptrend that preceded it to new highs above 1.5979.  A failure below Mon’s 1.5021 low and short-term risk parameter is required to negate this count and warrant its cover.

The fact that the sentiment/contrary opinion indicators have eroded a goodly amount from their late-Apr peaks suggest that the market has corrected enough to reduce or remove the downside vulnerability that such frothiness typically warns of.  The weekly log chart also shows the market tinkling on the lower-quarter of the past year’s range that also produced early-Jun’s smart recovery.  These factors would seem to reinforce a cautious bullish stance discussed above.

From a historic monthly perspective below, here too, this market remains deep within the middle of an 11-year range where aimless whipsaw in the months and even quarters ahead should not surprise.

These issues considered, a cautious bullish policy is advised from current 1.5625-area prices with a failure below 1.5021 negating this call and warranting its cover.  A break above 13-Aug’s 1.5979 high will reinforce this count and expose a potentially sharper move towards the upper-quarter of the past quarter’s range around the 1.71-handle-area.

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