Energy

Rebound, Relapse Contribute to Crude Oil Peak/Reversal Threat

Posted 05/01/2019 1:37PM CTRJO Market Insights

In Fri morning’s Technical Blog we introduced the prospect of a developing peak/reversal threat after only admittedly smaller-degree weakness below 22-Apr’s 65.27 corrective low, requiring subsequent weakness below 16-Apr’s 62.99 corrective low to confirm a bearish divergence in daily momentum.  The market confirmed this next degree of weakness within about an hour of that update, identifying 23-Apr’s 66.60 high as one of developing importance ahead of a correction or reversal lower of more significant scope.

 

Since last Fri, the 240-min chart below shows a near-61.8% retracement attempt and yesterday/today’s relapse that we believe contributes to this peak/reversal threat as part or all of a (B- or 2nd-Wave) correction.  As a result and while a bit premature as the market hasn’t broken Fri’s 62.28 initial counter-trend low yet, we believe yesterday’s 64.75 high serves as a tight but objective risk parameter from which non-bullish decisions like long-covers and cautious bearish punts can be objectively rebased and managed.

Crude Oil 240 Min Chart

 

Crude Oil Daily Chart

From a broader perspective and while Dec-Apr’s rally is a very impressive one, the factors warning of a more significant peak/reversal threat are increasingly compelling:

  • a confirmed bearish divergence in daily momentum
  • the market’s return to historically frothy sentiment levels
  • last week’s “outside WEEK” (higher high, lower low and lower close than previous week’s range and close).

Again, given the magnitude of even Feb-Apr’s portion of the bull from 51.23, let alone the entire uptrend from 24Dec18’s42.36 low, the bearish divergence in momentum is of an insufficient SCALE tp conclude a major top.  But the grotesquely bullish sentiment is hard to ignore as a source of downside vulnerability that could expose surprising losses in the period ahead.  And as a result of this week’s recovery attempt and failure, the market has now identified two levels- yesterday’s 64.75 high and certainly 23-Apr’s 66.60 high- from which traders can incur whipsaw risk in exchange for an early leg up on non-bullish decisions like long-covers and cautious bearish punts.

These issues considered, a cautious bearish policy is advised at-the-market (62.95) for shorter-term traders with a recovery above 64.75 required to negate this specific call and warrant its cover.  Longer-term players are OK to maintain a cautious bullish policy, but only to the extent that they acknowledge and accept 28-Mar’s 58.20 next larger-degree corrective low as the key long-term risk parameter the market is required to break to break the major uptrend.  In lieu of at least 64.75+ strength, we anticipate further lateral-to-lower prices in the period immediately ahead, and quite possibly a more protracted reversal lower.

Crude Oil Weekly Chart

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.