MAY CRUDE OIL
One of the more challenging markets to dissect of late has been crude oil, mainly because of the incredible volatility that makes daily moves difficult to categorize. The downtrend in the active-continuation chart of crude oil shows a rather textbook five-wave Elliot sequence stemming from the Jan. 8 highs at $65.65. In our opinion, wave one concluded with the lows on Feb. 4 at $49.31, followed by the corrective wave two, which concluded at $54.50 on Feb. 20. Wave three, which is often the longest in duration and appears to be in this case as well, ran all the way down to $19.27 on March 30. Since then, wave four has unfolded in a "running-three" pattern and is likely still unfolding. If our preferred wave count is corrective, wave five would still be pending with new lows below $19.46 expected in the days and weeks ahead. To confirm our call, crude oil simply must take out the $19.46 lows from March 20 with sharp losses expected straightaway. To negate our call, the market needs to sustain trendy, impulsive behavior above the April 3 corrective highs at $29.13. Until or unless the $29.13 corrective highs are broken, trends are down on all applicable scales and will likely continue or accelerate.
MAY NATURAL GAS
Natural gas has been another energy complex contract which has been badly beaten down over the last several months. In early April, spot natural gas prices dropped to their lowest level since August of 1995. Since then, the spot contract has broken trend-line resistance dating back to the highs from March 11 and early November. Volatility has certainly been heightened in natural gas as of late with 21-day volatility rising to 71% on Thursday. Prices have been able to rally back to the 50-day moving average, although the 100-day sits at $2.006 and the 200-day at $2.191. A great deal of resistance exists in this market between $1.836 and $1.900, which turned away the most recent rally attempt on April 8. The volume point of control (VPOC) is $1.836, or the level at which the most trade has occurred in the life of the contract. Above that level, shorts are likely getting nervous about a further recovery. Below $1.836 and shorts are most likely prepared to deploy additional risk capital to defend positions.
MAY RBOB GASOLINE
Other than crude oil futures, it is arguable gasoline prices have been the most widely followed energy market for its tie to the U.S. and global economy. RBOB gasoline prices fell 74% from the high on Feb. 20 to the low on March 23, which was also the lowest level since 2002. Since those lows, RBOB has recovered 55% and has sustained an upward trajectory. What remains to be seen is whether the recovery from the March 23 lows is indeed corrective ahead of another round of new lows below $0.4605, or whether the recovery attempt is just the first wave of a larger basing and reversal environment. Regardless of structure, the current move hasn't even recovered 23.6% of the previous sell-off, let alone the more customary 38.2% up at $0.9734. Without a recovery to at least the 38.2% retracement level, it looks increasingly likely another round of fresh lows could be had. Key risk parameters in this market would be the $0.6680 corrective low from April 9 and the $0.7697 corrective high from April 9. Those two levels should act as suitable directional triggers for the next move in this market.
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 email@example.com
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