The crude oil market finally showed its first signs of vulnerability last week since at least February, and arguably of the entire uptrend dating back to December. The three-session losing streak was the longest since mid-December and the bearish price action caused momentum indicators to fall accordingly. In fact, it could be argued that the trade below the $62.99 corrective low from April 16 confirmed the bearish divergence in momentum stemming from early April. Admittedly, failure below a short-term corrective low like that from April 16 is not enough to threaten the entire uptrend dating back to 2018, but it is enough to warrant non-bullish plays and a paring of bullish exposure. If this current price weakness is the early stages of a larger correction lower, some obvious downside targets would be the retracement levels at the 38.2% and 50.0% level from the entire $42.36 to $66.60 rally. The 38.2% retracement sits at $57.34 while the 50.0% retracement sits at $54.48. The 50-day moving average is resting at $60.13 while the 100-day is at $55.52, offering price targets somewhere in the middle of those retracement levels. Managed funds are holding a net-long position in crude oil of 330,396 contracts, which is the largest since Sept. 25, offering plenty of downside ammunition should weakness accelerate.
In similar fashion, the RBOB Gasoline market showed weakness last week, although the plight of RBOB has been much less straightforward than crude oil. RBOB is showing a similar bearish divergence in momentum, although to RBOB's credit it has not yet traded below the April 16 lows. This leaves its bearish divergence in momentum as a potential one, not a confirmed one, with trade direction much more subjective. That said, RBOB isn't likely to go anywhere crude oil does not, so downside retracement targets at $1.76 and $1.66 are valid just as they are in crude oil. RBOB also has an impressive roll gap on the active-continuation chart stretching from $1.5768 to $1.6972, which could act as a natural magnet should prices gain speed to the downside. Until a downside corrective low is breached, however, the longer-term trend remains up and should continue. Knowing what we know about the correlation in energy markets, however, we would expect RBOB futures to express similar weakness as that of the crude oil market in the coming days and weeks ahead.
Ethanol futures continue to enjoy a volatile trade with the selloff from the March highs almost as impressive as the rally from March 12 to March 22. Ethanol futures remain wrapped inside their 50-day, 100-day and 200-day moving averages, offering both support and resistance depending on the session. The market does have trend line support dating back to November, which was held last week. Fortunately, this market has offered some clear and present risk parameters from which to gauge directional conviction. To the upside, we have the $1.363 corrective high from April 23 while to the downside exists the $1.296 corrective low from April 25. A break of either risk parameter should point the way toward a new trend. There are no preferred Elliot Wave counts when looking at current price action as the March rally and subsequent selloff occurred at such a dramatic pace so as to leave no applicable wave counts in its wake. After volatility rallied to 23.18% on April 4, spot volatility is trending sideways at 16.5%, which could point toward an extended consolidation period before the new trend is established.
Tregg Cronin can be reached at firstname.lastname@example.org
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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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