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Energies

Trailing S-T Bull Risk on Moon-Shot RBOB

Posted 04/11/2019 8:13AM CT | RJO Market Insights

We don’t know if a 10-week, 32% rally constitutes a moon-shot or not, but with the exception of the 6-week, 38% explosion in Jun hogs this RBOB move is the biggest mover across all commodities we cover.  Save for a short-term correction the last week of Mar, this move has been a one-way street, sustaining new highs above prior corrective lows the whole way.  And while the May contract is quite a ways away from its 2.3533 high last Oct, as we’ll discuss below it’s closing in on last year’s 22-May high of 2.2804 basis the then-prompt Jul18 contract that cannot be ignored as a resistance candidate that warrants tightening up short-term bull risk.

The challenge is identifying even a smaller-degree corrective low when the market goes straight up without any setbacks.  In the 240-min chart below and without getting “too” tight, we see Tue’s 1.9860 low as one that would jeopardize the impulsive integrity of the portion of the uptrend from 05-Apr’s 1.9216 low if the market failed below it.  Per such we are defining this 1.9860 level as our new short-term risk parameter the market minimally needs to fail below to warrant defensive steps by shorter-term traders with tighter risk profiles.

Rbob May '19 240 Min Chart

 

Rbob May '19 Daily Chart

The daily (above) and weekly (below) log scale charts of the May contract clearly show the trend as up on all scales.  28-Mar’s 1.8147 corrective low is the closest larger-degree corrective low the market is required to fail below to, in fact, break the major uptrend to the point of non-bullish action like long-covers by longer-term players.  And even then, this would “only” break the uptrend from 28-Jan’s 1.5708 low, not necessarily the major rally from 26Dec18’s 1.4427 low.

Given the 3rd-wave-manner in which the market continues to perform, we strongly suspect a relatively large (4th-wave) correction/consolidation (similar to Jan/Feb’s 1.6833-to-1.5708 “area’) ahead of a final, exhaustive (5th-wave) continuation of the bull before we can more objectively start negotiating a prospective top.  Following such behavioral requirements, we’ll then be able to trail our longer-term risk parameter to that low of that (suspected 4th-wave) consolidation.

Market sentiment levels have understandably return to frothy heights typical of major PEAK/reversal conditions, but traders are reminded that sentiment/contrary opinion is not an APPLICABLE technical tool in the absence of an accompanying confirmed bearish divergence in momentum of a scale sufficient to break the major uptrend.  And given the prospect/requirement of at least a (4th-wave) consolidative before a subsequent resumed (5th-wave) rally to another round of new highs, this bull is arguably going to be around for a while, and perhaps through the summer driving season.

Rbob May '19 Weekly Chart

 

Finally, the monthly log scale chart of the most active contract below shows the market’s current position still pretty much in the middle-half bowels of its historical that actually dates back to 2005!  On this basis the market is closing in on 2018’s 2.28 high and the 2.23-area that makes the recovery attempt from Feb’16’s 0.8975 low 61.8% of the length (i.e. 0.618 progression) of Dec’08 – Apr’12’s 0.7850 – 3.4278 previous rally attempt of this size.

This Fibonacci progression fact was an interesting accompaniment to 2018’s peak/reversal condition and may be so again.  But as with all merely “derived” technical levels like Bollinger Bands, imokus, trend lines, the ever-useless moving averages, this Fib relationship should NOT be considered a reliable reason to expect resistance.  ALL of these derived levels NEVER have proven to be reliable reasons to buck a trend in the absence of a trend-stemming bearish (in this case) divergence in momentum, and they never will.  And herein lies the importance of identifying a corrective low and risk parameter like 1.8147 (currently) as THE key to navigating a peak/reversal environment.  IN lieu of such a mo failure, the market’s upside potential is indeterminable and potentially extreme, even above 2.28.

These issues considered, a full and aggressive bullish policy remains advised with a failure below 1.9860 for shorter-term traders to pare or neutralize bullish exposure.  Commensurately larger-degree weakness below 1.8147 remains required for long-term players to move to the sidelines.  In lieu of such weakness, further and possibly accelerated gains remain expected.

Rbob Monthly Chart

RJO Market Insights