March Crude Oil:
At the end of January, we did a technical update on crude oil, the U.S. Dollar Index and the E-mini S&P 500 contract. Given the events of the weekend, we thought it was worth another look at crude oil specifically. After consolidating for most of late January, crude oil broke out of its consolidative pattern to trade higher for eight straight sessions and 10 of the last 11. Crude is now enjoying the highest spot prices since Jan. 8, 2020, with the next level of solid resistance between $63 to $66 per barrel. The March contract has an impressive rising trend channel, which has upside to at least the $62 level. The possible divergence in momentum we wrote about in late January has been negated as the surge in price was accompanied by new highs in the stochastic measure of momentum. Trends are up on all applicable scales and additional gains in crude oil prices should not surprise. Friday's corrective low at $57.41 would be the first level of support we would look to as a directional trigger for signs the upside function has been complete.
March Natural Gas:
The only energy market with more focus than crude oil is natural gas as spot prices in Texas have surged by an unbelievable amount to meet extreme home heat demand. The weather-driven rally has pushed spot natural gas prices to the highest level since Nov. 5 and above all major moving averages. Momentum indicators are in good shape with trends up and aligning nicely with price. The next major level of resistance for spot natural gas is the $3.396 corrective high from Oct. 30. Based on our view of the natural gas market, the rally from the June lows to the October highs looks like wave-a of a larger degree a-b-c corrective sequence. Wave-b would have been completed with the corrective lows at $2.263 on Dec. 28. Snapping the distance of wave-a to the end of wave-b provides an upside target for wave-c of $4.139. This is a long-term count with many things needing to happen to give it validity. First and foremost, spot prices need to push to the $3.393 area and challenge the October corrective highs. Based on price action to date and momentum indicators, this seems likely in the days and weeks ahead.
March Heating Oil:
The rally in heating oil since the fall lows has been one of the more impressive in the commodity sector. Spot heating oil has now reclaimed more than 75% of the entire 2020 sell-off with nothing in the way of resistance until the $2.1195 corrective high from Jan. 8, 2020. In looking at upside price targets, the rally from $0.6724 to $1.3054 snapped on the $1.0252 corrective low from Nov. 2 shows the 100% progression at $1.6582. Obviously, we've already moved well beyond that level, but the 161.8% progression of the initial rally sits up at $2.0494, just shy of the $2.1195 corrective highs from January 2020. The fact we've already moved past the 100% progression of the initial rally leg argues this is simply the third wave of a larger degree five-wave Elliot sequence. With these issues considered, a full bullish policy remains advised in heating oil with weakness below the corrective highs around $1.6235 needed before moving to a more neutral stance.
Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of commodities or commodity futures involves substantial risk and are not suitable for everyone.
Todd Hultman can be reached at Todd.Hultman@dtn.com
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