Energy

RBOB, Heating Oil Weakness Reinforce Major Peak/Reversal Counts

Posted 07/21/2022 9:50AM CTRJO Editorial Team

SEP RBOB

Today’s break below last week’s 2.9312 low in the now-prompt Sep contract reinforces our major peak/reversal count introduced in 17-Jun’s Technical Webcast and leaves Mon’s 3.1839 high in its wake as the latest smaller-degree corrective high this market is now required to recoup to arrest Jun-Jul’s slide and expose a larger-degree corrective rebound.  Until and unless such strength is proven, the trend is down on all practical scales and should not surprise by its continuance or acceleration.  Per such, we’re identifying 3.1839 as new key risk parameter from which a recommended bearish policy and exposure can be objectively rebased and managed.

This relatively tight corrective high and risk parameter at 3.1839 may come in handy given the 1) nicely developing POTENTIAL for a bullish divergence in momentum on a daily log scale basis above and 2) what could be the completing phase of a textbook 5-wave Elliott sequence down from 10-Jun’s 3.9253 high as labeled below.  Of course, this count and divergence won’t be CONFIRMED to the point of non-bearish action like short-covers until and unless the market recovers above 3.1839.  And again, until such specific strength is proven, steep, accelerated, even relentless losses straight away remain possible per major peak/reversal-threat elements discussed below. 

As discussed in recent updates, the combination of:

  • bearish divergence in WEEKLY momentum amidst
  • historically frothy sentiment/contrary opinion levels
  • an arguably complete and massive 5-wave Elliott sequence up from Mar’20’s 0.4605 low and
  • the market’s gross failure thus far to sustain 2Q22 gains above 2008’s previous all-time high at 3.6310

is a unique and compelling list of facts and observations that warn of a peak/reversal environment that we believe will be massive in scope.  In effect and unless nullified by a recovery above early-Jun’s 4.3260 high, we believe that high COMPLETED THE SECULAR BULL MARKET FROM 2020’S LOW and is the start of a major reversal lower that would be expected to span quarters or even years.

These issues considered, a bearish policy and exposure remain advised with a recovery above 3.1839 required to warrant moving to the sidelines to circumvent the heights unknown of a not unexpected 2nd-Wave corrective rebound typical within major peak/reversal processes.  In lieu of such strength, further and possibly steep, accelerated losses straight away should not surprise.

SEP HEATING OIL

While the now-prompt Sep diesel market has, unlike RBOB, failed to take out 06-Jul’s 3.2946 low needed to reinstate Jun-Jul’s downtrend, we believe the technical construct is identical to that detailed above in gas with today’s break below last week’s 3.4198 low reinforcing last week’s bearish divergence in momentum that defines 11-Jul’s 3.7171 high as the end or upper boundary of a (suspected 4th-Wave) correction ahead of a (5th-Wave) resumption of the decline from 17-Jun’s 4.3703 high.

Today’s resumed weakness also identifies yesterday’s 3.6073 high as the latest smaller-degree corrective high this market now needs to sustain losses below to maintain a more immediate bullish count.  Its failure to do so will render the sell-off attempt from 3.7171 a 3-wave and thus (b-wave) corrective affair that would then expose a run at or above the key 3.7171 level.  Per such, we’re defining 3.6073 and 3.7171 as our new short- and longer-term bear risk parameters.  A recovery above 3.7171 could expose a larger-degree (2nd-wave) correction of Jun-Jul’s entire 4.3703 – 3.2946 decline that traders should avoid by moving to the sidelines.

On a much longer-term basis, the weekly (above) and monthly (below) log scale charts show the same major peak/reversal elements discussed above in RBOB:

  • a confirmed bearish divergence in WEEKLY momentum amidst
  • historically frothy bullish sentiment
  • an arguably textbook complete and massive 5-wave Elliott sequence up from Apr’20’s 0.6724 low in which
    • the 5th-Wave from Dec’21’s 2.0069 low spanned a length exactly 61.8% (i.e. 0.618 progression) of the net distance of Wave-1-thru-III (0.6724 – 2.6080), and
  • the market’s gross failure thus far to sustain Mar-Jun’22’s breakout above 2008’s former all-time high of 4.1586.

These technical facts and observations are unique and compelling and warn of a peak/reversal environment that we expect to be as massive as that following 2008’s high.

These issues considered, a bearish policy and exposure remain advised with a recovery above 3.6073 required for shorter-term traders to neutralize exposure and for longer-term commercial players to pare exposure to more conservative levels.  Further strength above 3.7171 would warrant a move to the sidelines by long-term players in order to circumvent the heights unknown of a larger-degree 2nd-Wave correction of Jun-Jul’s 4.3703 – 3.2946 initial 1st-Wave down.

RJO Editorial Team