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Energies

Sniffing Around for Interim Bottoms in Crude Oil, Diesel, Gas

Posted 11/07/2018 8:56AM CT | RJO Market Insights

DEC CRUDE OIL

Long-time readers of our analysis knows of our disdain for merely derived technical levels- even Fibonacci relationships- as well as our requirement for a confirmed bullish (in this case) divergence in momentum on some scale before trying to catch the proverbial falling knife.  And indeed, only a glance at the daily log chart below is needed to see that the downtrend from 03-Oct’s 76.90 high remains firmly intact, especially after breaking the key 64.43-to-63.40-area support from Jun-thru-Aug.  This breakdown gives the bear every opportunity to continue to perform to the downside straight away that that now-former 63.40-to-64.43-range support considered a key new resistance candidate.

On this broader scale a recovery above at least this former support-turned-resistance-range and preferably above 29-Oct’s 67.95 corrective high remains required to threaten or break this downtrend.  HOWEVER…

Crude Light Daily Chart

Crude Light 240 Min Chart

…Against this bearish backdrop, we’d like to point out an admittedly smaller-degree corrective high defined by Mon’s 64.14 high.  The 240-min chart above shows the developing POTENTIAL for a bullish divergence in momentum.  A recovery above 64.14 will CONFIRM this divergence to the point of non-bearish action like short-covers and cautious bullish punts and leave whatever low is left in the wake of that divergence as a new micro risk parameter the market would then need to break to reinstate the bear.

Such a 64.14+ mo failure will NOT be of a scale sufficient to CONCLUDE a broader base/reversal count.  Such a minor mo failure would only allow us to conclude the end of the portion of the slide from 29-Oct’s 67.95 corrective high.  However, we find it compelling that:

  • the decline from 03-Oct’s 76.90 high could be a complete 5-wave Elliott sequence as labeled above with
  • the completing 5th-Wave down from 29-Oct’s 67.95 high coming within 0.08-cents of the (61.05) 0.618 progression of the Waves-1-thru-3 decline from 76.90 to 65.74 and
  • yesterday’s 61.13 low coming within 0.07-cents of the (61.06) 38.2% retrace of the entire Jun’17 – Oct’18 rally from 42.05 to 76.90 on a weekly log basis below.

Again, we remind traders that we do NOT use derived levels like Fibs as a reason to define support or resistance in the absence of a confirmed momentum failure needed to stem the trend and reject/define a more reliable level from which to objectively navigate a turn.  Herein lies the importance of Mon’s admittedly minor corrective high at 64.14, the recovery above which would reject/define “enough” of a low to make non-bearish decisions favorable risk/reward ones.

In sum, the trend is down on all scales and should not surprise by its continuance or acceleration.  A commensurately larger-degree momentum failure above 29-Oct’s 67.95 corrective high remains required to, in fact, break then downtrend from 03-Oct’s 76.90 high and expose a major correction higher.  However, a recovery above Mon’s smaller-degree corrective high at 64.14 will provide enough of a mo failure to reject/define a more reliable low from which non-bearish action like short-covers and cautious bullish punts can be objectively based and managed.

Crude Light Weekly Chart

DEC HEATING OIL

Diesel isn’t gonna veer much from crude oil, so it’s no surprise that we have a similar technical setup here to that detailed for crude oil above.  In fact, overnight’s break above Mon’s 2.2135 initial counter-trend high has confirmed a bullish divergence in very short-term momentum that defines Mon’s 2.1563 low as one of developing importance and very possibly the end of a 5-wave Elliott sequence down from 03-Oct’s 2.4500 high as labeled in the 240-min chart below.

Yesterday’s 2.1655 low is left in the wake of overnight’s resumed rebound as the latest smaller-degree corrective low and new micro risk parameter the market is now obligated to relapse below to render the recovery from 2.1563 a 3-wave and thus corrective event that would re-expose the major slide.  Per such this 2.1655 low is considered our new micro risk parameter from which non-bearish decisions like short-covers and cautious bullish punts can be objectively based and managed.

Heating Oil 240 Min Chart

 

From a broader perspective it remains clear that the past couple days’ recovery is of a scale INsufficient to conclude a broader bottom.  Indeed, the market has only recovered to former 2.2314-area support from 24-Oct that, since broken on 01-Nov, now serves as an excellent resistance candidate within the broader downtrend.  More significant headway above the 2.23-handle will eat away at this bearish factor and expose a run at 29-Oct’s 2.3122 larger-degree corrective high and key risk parameter this market is still required to recoup to, in fact, break the past month’s major downtrend.

Heating Oil Daily Chart

 

It may prove important to note that the decline from 03-Oct’s 2.4500 high spanned almost the same length (i.e. 1.000 progression) as May-Jul’s preceding sell-off from 2.3069 to 2.0417.  Combined with continued erosion in the sentiment levels and the (admittedly minor degree) bullish divergence in mo, a more significant corrective rebound should not come as a surprise.  The key now are the market’s ability to sustain micro gains above 2.1655 and extend those gains, initially above a resistant 2.23-handle and then certainly above 2.3122.

These issues considered, shorter-term traders with tighter risk profiles are advised to move to a neutral-to-cautiously-bullish policy from 2.2125 OB with a failure below 2.1655 negating this call and re-exposing the broader bear.  Longer-term players are advised to pare bearish exposure slightly as a result of overnight’s pop with further gains above 2.2400 and then 2.3122 to pare further and then cover altogether bearish exposure.

Heating Oil Weekly Chart

 

DEC RBOB

The technical construct and expectations for RBOB are virtually identical to those detailed above in crude oil with Mon’s 1.7220 corrective high considered our new micro risk parameter around which non-bearish decisions like short-covers and cautious bullish punts can be objectively based and managed.

Rbob Dec '18 240 Min Chart

 

Rbob Dec '18 Daily Chart

The trend remains down on all scales and should not surprise by its continuance with a recovery above 1.7220 threatening this call and subsequent gains above 29-Oct’s 1.8343 corrective high and risk parameter required to break the downtrend.  The market’s proximity to the lower recesses of the near-3-year uptrend and (1.6695) 50% retrace of 2017-18’s major 1.2986 – 2.1464 uptrend amidst sharply decline bullish sentiment levels are factors that could warn of a base/correction/reversal environment that now only needs a bullish divergence in mo on “some” scale to reject/define a more reliable low and support and provide the first objective step in such a reversal prospect.

In sum, a bearish policy remains advised with a recovery above 1.7220 a very minor but important first step in challenging the bear and providing an objective condition from which to swing around to a cautious bullish policy by shorter-term traders and for longer-term players to perhaps pare bearish exposure to more conservative levels.

Rbob Dec '18 Weekly Chart

 

 

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