Technically Speaking

Mixed Wave Counts Across Energy Complex

Spot ethanol prices have either completed a three wave, and therefore corrective sequence, or they are corrective wave four ahead of a fresh round of new highs as the wave is completed. (DTN Prophetx graph)

Crude oil prices remain firmly inside of their intermediate and long-term downtrends dating back to April and October, respectively. Last week, crude managed to string together three bullish sessions, but the severity of the downtrend leaves much work to do before even short-term scales could be called higher.

From a wave-count perspective, we feel crude is currently inside the third wave of a larger five-wave bear count, which dates back to April 23. With this in mind, the current short-term uptrend could be wave four, which could see further strength up to the 38.2% to 50.0% retracement level of the preceding wave around $55.70 to $57.30.

Once the retracement is complete, a fresh round of new lows would be expected below the $50.60 corrective low from June 5. If this count is incorrect, it would be verified by strength above a corrective high like that from May 30 at $59.70. With these ideas in mind, trends remain down until strength above a prior corrective high can be confirmed.

The weakness in natural gas has been one of the more impressive technical features in commodities as of late. Last week, spot prices traded to the lowest level since June of 2016. The fact that price is down over 50% from late 2018, and the downtrend it has created, remains the dominant technical feature in natural gas. There is not much for actual technical support levels until the 2016 lows around $1.611. The downtrend should be expected to remain in place, or possibly even accelerate, as momentum indicators show no possible bullish divergence from price. The natural gas market is a great example of why momentum indicators should never be used as "overbought" or "oversold" indicators. A trending market can remain "overbought" or "oversold" for weeks or even months. Rather, we should be looking for a divergence with price from which to gauge further bearish exposure.

The ethanol market has been trending lower as of late since spiking to the highest spot price since September 2017. By our count, the rally from $1.217 to $1.434 in late 2018 to March 2019 was either the initial A-wave of a larger degree ABC corrective sequence, which would be called complete with the rally to $1.568. However, we cannot be certain this is simply a three-wave corrective sequence until prices drop below the $1.434 corrective high from March 22. If prices maintain strength above that intial A-wave, it could be argued we are still in the midst of a larger five-wave bull move higher. Should that be the case, a new round of highs above the $1.568 highs would be expected. In the near term we will be watchful for a divergence in even short-term momentum from which price should rebound higher.

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.

Tregg Cronin can be reached at tmcronin31@gmail.com

Follow Tregg Cronin on Twitter @5thWave_tcronin

(BAS/CZ)

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