If you're one of the few people who read my weekly outlook from last week, you weren't taken by surprise by the move we saw in crude this past week. Taking a look at the weekly charts of energy complex this week, I am beginning to see a bit of a mixed message. As you can see, heating oil (HO) has been exhibiting relative strength and will be key to watch going forward.
Potential BULLISH scenario: we see the possibility of weekly flags/down channels developing in the complex. There is a very real possibility that we see a bounce over the next couple of weeks with a potential move higher through these channels to new highs.
What is keeping my BEARISH: Gasoline (RB) appears to be breaking down through its multi-year upchannel. It has been holding fairly tightly within a shorter term down channel but is sitting at a key support level at the 2.446 area. It is currently below the kumo which has flipped bearish and chikou firmly below prior price.
Both HO and RB have imminent MACD centerline crosses on the weekly charts. The MACD centerline has firmly respected in past uptrends and prior bearish crosses have led to substantial declines. Another level to watch would be the RSI falling below 40. This also tends to hold in uptrends and is broken prior to significant downtrends.
Looking specifically at the weekly crude oil chart, last week confirmed the backtest and rejection of our prior upchannel. This coincided with chikou rejection at June prices. We managed to find support at the tenkan-sen and bottom of our kumo. MACD also appears to be rolling back over.
The daily chart has the potential for a channel/flag to begin forming. We have had a bearish cross of the tenkan-sen below the kijun along with chikou falling below price. We also see a potential bearish MACD centerline cross.
In the shorter term, the 95.20 area is a key area. Bullish above, bearish below. There should also be strong support in the 90.45 area coming from previous price as well as the top a bullish kumo. I've laid out a couple of possible moves in the near term. We should keep in mind that in the commodities, trends tend to persist with shallow pullbacks. If this is the beginning of a new downtrend, rallies will be shallow and it will be difficult to be able to find easy entries into a short swing-type position.
On the hourly time frame, we are firmly in a downtrend. However there area positive divergences as new lower lows in price were met with higher lows in both RSI and MACD. Although the 90.45-95.20 range I discussed is quite large, I believe that anything within this area will be noise and only for the very short term trader.
I will be looking to sell the 95.20 area or a break below 90.45 area. I do not want to be caught in "no-man's land" as @HCPG from the twitter-verse consistently refers to. There is the potential for a lot of random action going into year's end, but I have a short bias with distinct areas where I will be willing to do business. Also, keep in mind that we will be switching over to the G (February) contract this week.
Once again, thank you for reading and any comments or feedback are always appreciated.