Crude oil continued its record-setting downtrend last week, closing lower for a seventh consecutive week, the longest losing streak on a weekly basis since late 2014. The next serious level of price support would be the corrective lows from June 2017 around $42.05 to $42.60. Price would also run into the 61.8% retracement of the entire $26.05 to $76.90 rally at $45.47. From a daily perspective, crude is starting to show some diverging momentum from price as new lows are made in futures, but not momentum studies. This could be an early sign of a bullish divergence, but such a divergence would only be confirmed with trade back at a prior corrective high such as $58.16.
Admittedly, the $58.16 corrective high is well above the market, but a market that falls as precipitously as the crude oil market leaves little for price indicators in its wake. On balance volume (OBV) is understandably in incredibly bearish territory. From a shorter-term, hourly perspective, we would like to see trade back above the $55.86 corrective high from Nov. 21 to conclude the near-term downtrend has paused or concluded before making a run back at the $58.16 corrective. Short of a recovery above that level, current downtrends will remain in place and further losses should be expected in the days and weeks ahead.
The only thing more impressive than crude oil's downtrend of late has been the upside and volatility in the natural gas market. After gapping higher in early November, natural gas uncorked an 18.7% rally on Nov. 14 to trade the highest level since June 2014. In the process, the most-actively traded contract obliterated three major resistance candidates, which should now be considered support on setback attempts.
Gauging the next leg in price will be tricky, relying on short-term changes in momentum. The stochastic measure of momentum on a daily perspective is now trending lower, which is not unusual considering the slowdown in the rally. While understandably large, the two risk parameters to use in our opinion would be the $4.568 to the upside from Nov. 23 and $4.117 to the downside from Nov. 22. Hourly momentum indicators are in neutral territory and offering little directional help. The major gap to the downside from $3.313 to $3.437 should act as a magnet until filled, but this does not mean it needs to be filled against the current front-month contract or anytime soon. In a 21-day period, volatility closed Friday at 105.09%, so one needs to understand normal price signals can and will be muddled in an environment such as this.
While not quite as impressive as the decline in crude oil, RBOB unleaded gasoline futures have also put forth a downtrend worth noting. A chart of the most-actively traded contract shows spot prices at their lowest levels since November 2016 with major moving averages of 50 cents to 60 cent per gallon above the market. Fortunately, daily momentum indicators are showing a potential bullish divergence in momentum as price has continued to make new lows, but momentum has made higher lows. Further, OBV has bottomed, albeit in bearish territory, possibly suggesting the worth of selling pressure has already passed.
Volatility over the last 21-day periods has understandably spiked to over 40%, the highest since March. The downtrends will remain in place with further losses expected straightaway until price can recover above a prior corrective high. While well above the market, the corrective high of choice would be $1.5425 from Nov. 21. A recovery above a solid corrective high such as that would be required to give enough confidence to move away from full bearish exposure. Until then, further losses are expected in the days and weeks ahead.
Tregg Cronin can be reached at firstname.lastname@example.org
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.
© Copyright 2018 DTN/The Progressive Farmer. All rights reserved.