Energy Complex Shakes Up Chart Patterns
It is difficult to find a more technically relevant market than West Texas Intermediate crude oil given its massive gap higher out of the gates Sunday evening. While fundamentalists will point toward the drone attacks in Saudi Arabia as the cause, technicians are much less concerned with the "what" that triggered the move as opposed to the "what" happens now.
The gap left on daily charts from $55.68 to $58.77 will act as a magnet for bearish price action until closed, but the fact the overnight strength took out the $60.94 corrective high from July 11 is technically significant. The strength breached downtrend resistance dating back to the $66.60 corrective highs from April 23, as well, and pushed spot prices above the 50-, 100- and 200-day moving averages.
Interestingly, while 21-session volatility rose to 44.2% overnight, it is still below recent highs at 47.7% on Aug. 29. Momentum indicators have barely budged on the move, a textbook example of price action leading momentum, not the other way around as some like to indicate with calls for a market being "overbought" or "oversold." From a technical perspective, it would be great to see crude oil futures close in the high range, but the breakout above the resistance of the prior 60 days is significant and should act as support on future setback attempts.
Brent crude oil futures are actually showing larger percentage gains overnight, but are further removed from the highs set during the evening session than WTI. Brent crude oil futures rallied to just shy of $72.00 per barrel, the highest spot price since May 22. At the highs, the Brent/WTI spread blew out to $8.61 per barrel premium Brent before settling back towards $6.00 per barrel premium Brent early Monday morning. With the focus of the weekend attacks impacting Brent crude oil pricing more so than WTI pricing, Brent crude oil is probably the market to watch for early signs of either pending weakness or continued strength. The spread between the two crude oil futures contracts should offer an early glimpse at whether Brent is starting to relinquish gains or add to them. While the Brent/WTI spread took out the July 25 highs at $7.37 per barrel, it is trading well below that level Monday morning.
RBOB gasoline prices are the concern of most average consumers as well as the Trump administration, making a closer look at the technical ramifications warranted. RBOB gapped higher Sunday evening just like crude oil, although the price action prior to the strength is much different than either WTI or Brent.
RBOB has somewhat of an island-bottom reversal process at work with a gap lower from Aug. 19 to Aug. 20 followed by the gap higher from Sept. 13 to Sept. 16. These gaps set the price action in between moves off and on to an "island," and are commonplace at the end of long uptrends or downtrends. The significance of this formation could be one of a longer-term bottom with continued strength in the days and weeks ahead.
Some upside price targets based on Fibonacci retracement levels to keep in mind would be the 50% retracement of the $2.0378 to $1.4475 selloff at $1.7426, which we briefly tagged overnight, as well as the 61.8% retracement at $1.8123. Momentum indicators are of limited use after one session worth of price action but it is noteworthy highs in the stochastic measure of momentum were made on Sept. 10. If new highs cannot be made in momentum as price action puts forth new highs, it could be an early warning side of momentum diverging from price as the move has limited backing.
Tregg Cronin can be reached at email@example.com
Follow Tregg Cronin on Twitter @5thWave_tcronin
Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of grains and grain futures involve substantial risk and are not suitable for everyone.
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