Author: Dean Rogers, CMT

Dean Rogers, CMT is the general manager of the Kase Call Center in Albuquerque, New Mexico. He oversees all of Kase and Company, Inc.’s operations including research and development, marketing, and client support. Dean began his career with Kase in early 2001 as a programmer but has developed into Kase’s senior technical analyst. He writes Kase’s award-winning weekly Crude Oil, Natural Gas, and Metals Commentaries. He is an instructor at Kase's classes and webinars and provides all of the necessary training and support for Kase's hedging models and trading indicators for both retail and institutional traders.

The long-term outlook for WTI crude oil remains bullish and any move down will most likely be corrective. However, the move up has reached an area of significant resistance between $57.2 and $60.0 for the December contract. Many of the largest waves up from this summer’s $43.08 swing low project to targets within this range. There are no factors that indicate the move up will end, but the confluence of resistance within this range, overbought daily and weekly momentum, and the formation of a daily bearish Harami line and star indicate a corrective pullback should take place as early as tomorrow.

WTI Crude Oil Daily Candlesticks and Wave Projections

The late move below the $56.89 swing low opens the way for at least $56.6. This is the Harami line and star’s completion point and equal to (1.00) target of the wave $57.69 – 56.89 – 57.44. A move below this would call for $56.1, the star’s confirmation point and the larger than (1.618) target of the wave down from $57.69. For now, $56.1 will probably hold, but settling below this would shift odds in favor of a larger downward correction to $55.2 and possibly $54.7 before the move up continues toward $60.0.

For today’s small move down to continue the $57.44 swing high must hold. A move above this would take out the wave down from $57.69 that projects to $56.6 and lower. This would also call for a test of $58.1. A close above $58.1 would put near-term odds back in favor of $58.5 and $59.0. Both are important projections for the waves up from $46.59 and $43.08, respectively.

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December natural gas fulfilled the equal to (1.00) target of the wave $3.353 – 3.013 – 3.198 when it fell to $2.847 today. Aside from a few brief declines to targets around $2.75, support around $2.86 has been troublesome on the continuation chart since late June. Technical factors indicate this may prove to be strong support for the December contract too.

It is much too soon to definitively state that the move down is over or even that a major correction is underway. However, the small move up from $2.847 formed a daily morning star and hammer reversal pattern setup that would be completed upon a close over Tuesday’s $2.942 midpoint. This is also near the larger than (1.618) projection of the small intraday wave $2.847 – 2.896 – 2.866. Also, the KasePO and Slow Stochastic are oversold and setup for bullish reversal patterns. Even the RSI is nearly oversold.

The challenge is that all of these positive factors are just setups at this point. Prices will need to settle above at least $2.95 to show that a meaningful correction is underway. Settling above $2.95 (more specifically, $2.945) would open the way for $2.99, the morning star and hammer’s confirmation point and the 38 percent retracement of the decline from $3.198 to $2.847.

If the move down is going to continue this week, a normal correction should hold $2.99. Otherwise, a close above this would call for a test of key near-term resistance at $3.05. This objective is split between the 62 percent retracement of the decline from $3.198 and the 38 percent retracement of the decline from $3.353. A close above $3.05 would not prove that the move down is over, but would provide a technical spark for a much more serious test of resistance that could ultimately lead to a recovery.

All of that said, the larger scale trend is still negative and longer-term odds ultimately favor a continued decline. Therefore, the anticipated move up to at least $2.95 and possibly higher will most likely be corrective. In addition, should prices fall below the $2.866, the wave up from $2.847 that projects to $2.95 and higher would be taken out. In this case, near-term odds will shift back in favor of $2.82 and ultimately $2.75, the next major objective below $2.86.

This is a brief analysis for the next day or so. Our weekly Natural Gas Commentary and daily updates are much more detailed and thorough energy price forecasts that cover key natural gas futures contracts, calendar spreads, the UNG ETF, and several electricity contracts. If you are interested in learning more, please sign up for a complimentary four-week trial.

December WTI crude oil had a legitimate chance for the corrective move down from $54.46 to extend today after setting up a daily evening star and intraday head and shoulders formation. However, support held, and prices rose at the end of the day, settling above the key $54.2 target and opening the way for $55.0 and higher tomorrow.

The next major confluence point is $56.0, the equal to (1.00) target of the wave $46.59 – 53.11 – 49.44, and the larger than (1.618) target of the wave $49.44 – 52.65 – 50.87. Small pullbacks will likely take place before $56.0 is met. Once this objective is overcome look for $56.4 and likely $57.2, the intermediate (1.382) target of the wave $43.08 – 50.72 – 46.59.

Resistance at $54.2 has now become support that will likely hold tomorrow. A move below this would call for $53.8 and possibly $53.4, last Friday’s midpoint. Settling below $53.4 is unlikely over the next few days but would indicate a larger correction is underway before the move up continues to $56.0 and possibly higher.

November natural gas met support at $2.85, the intermediate (1.382) target of the wave $3.036 – 2.908 – 3.026. This wave is now in position to extend to its $2.81 larger than (1.618) target. This is an important objective because it is also the smaller than (0.618) target of the waves $3.214 – 2.827 – 3.036 and $3.561 – 2.886 – 3.214. Settling below $2.81 would open the way for a more negative near-term outlook.

Due to the confluence and importance of $2.81, once this target is met there is a reasonable chance another test of resistance will take place before prices fall much lower. Initial resistance is $2.89 and then $2.92. A normal correction should hold $2.92 because this is the 38 percent retracement of the decline from $3.036.

Key resistance for the near-term is $2.97, the 62 percent retracement. A close above this would call for another attempt at $3.02, the 50 percent retracement of the decline from $3.214 and the 50-day moving average.

At this point, aside from confluent support at $3.81, there is very little technical evidence that indicates the move down will end soon. This may change as withdraw season approaches and weather gets cooler. However, for now, odds have shifted back in favor of a continued decline to challenge the continuation charts $2.753 swing low.

WTI crude oil met support at $51.3 before stalling at $51.21. The move down has been choppy and forms a bullish wedge on the $0.35 Kase Bar chart. The move up from $51.21 was aggressive and is poised to break higher out of the wedge and challenge key resistance at $52.5 again tomorrow. A close above this would open the way for $53.0, $53.5, and ultimately $54.2, the next major objective.

That said, prices pulled back a bit this afternoon, therefore a test of $51.4 might take place first, but support is expected to hold. A move below $51.4 before $52.5 is met would call for $51.1 and possibly $50.3. The near-term outlook becomes negative again upon a close below $50.3, the 62 percent retracement of the move up from $49.1 and the 1.618 projection of the wave $52.37 – 51.21 – 52.17.

Many near-term factors are positive for WTI crude oil. Tuesday’s move up confirmed a daily morning star, today’s move settled above the $51.22 swing high, and last week’s $50.5 midpoint has been overcome. These factors call for the move up to continue, but caution is warranted.

WTI met and held the exact 62 percent retracement of the decline from $58.26 to $49.1 when it rose to $51.42 today. This crucial level held again when prices rose to $51.37 ahead of the close.

WTI Crude Oil Kase Bars — WTI Crude Oil $0.35 Kase Bars

Therefore, prices will probably test support at $50.6 before challenging $51.4 again. Key support is $50.1, Tuesday’s midpoint and the 62 percent retracement of the rise from $49.1 to $51.42. A close below this would indicate the move up has failed and that the near-term has readopted a negative outlook.

Should prices settle above $51.4, look for a $52.1 and more likely $52.5 to be met before the end of the week.

November natural gas overcame $2.94 but could not settle above this highly confluent threshold. The pullback from $2.962 formed a long upper shadow on the daily chart. Patterns like this that have formed during the past few weeks have been early warnings that the corrective moves up have stalled. This is probably the case again, so odds favor a test of at least $2.86 tomorrow. A close below $2.86 would open the way for $2.82 and more likely $2.79. The key objective is $2.75, which is in line with the continuation chart’s $2.753 swing low.

Natural Gas Kase Bars — Natural Gas $0.035 Kase Bars

That said, support at $2.88, the 62 percent retracement of the move up from $2.827, held this afternoon. Therefore, there is an outside chance that the move up will continue. A move above $2.93 in early trading would open the way for $2.97, which is now the smaller than (0.618) projection of the wave $2.827 – 2.962 – 2.884. This is also near the 38 percent retracement of the decline from $3.214 and the 62 percent retracement from $3.089. A close above $2.97 would call for $3.02, the equal to (1.00) projection, 50 percent retracement from $3.214, and 50-day moving average.

November natural gas’ initial rise to $2.977 overcame Monday’s $2.967 midpoint. However, prices could not close above that level and the subsequent decline has already retraced 50 percent of the move up from $2.88. The candlestick’s long upper shadow indicates today’s move up was most likely a failed attempt to overcome resistance. Therefore, odds still favor a decline. A move below $2.90 early tomorrow would open the way for $2.85.

That said, a bullish daily KaseCD divergence and rising Stochastic %K-line indicate consolidation and possibly another attempt at $2.98 and higher might take place. $3.02 is most important for the near-term because it is split around the 38 percent retracement of the decline from $3.214, the 62 percent retracement from $3.089 and the 50-day moving average.

To confirm the move down is over (for now), prices must overcome the $3.089 swing high, which is also the 62 percent retracement of the decline from $3.214. This would, in turn, take out the wave $3.214 – 2.974 – 3.089 that projects to $2.85 and lower.

With all factors considered, the market still has a neutral-to-negative near-term outlook. Until external factors can support a sustained recovery, the decline will most likely continue to grind its way lower.

November WTI crude oil met the 62 percent retracement of November’s decline from the 2017 $58.37 swing high to $42.8 at $52.42 when it rose to $52.43 early this morning. This is major resistance because it is also a confluent wave projection. Settling above $52.6, the upper end of the confluence range around $52.42, would be bullish for the long-term.

For now, the long-term outlook remains positive. However, normally, when such an important target is met a significant correction will take place before that objective is overcome on a sustained closing basis. Today’s pullback from $52.42 formed a bearish Harami line and star, which is a reversal pattern. These patterns are not highly reliable, but the overbought daily Stochastic, RSI and nearly overbought KasePO indicate a pullback should take place soon.

This afternoon’s move up after the API Petroleum Inventories report was released indicates $52.6 might be tested early tomorrow. However, we expect this level to hold and for the downward correction to extend to at least $51.4 tomorrow, which is in line with Monday’s $51.45 midpoint. A close below this would open the way for $51.0 and possibly lower.

At this point, even a normal correction of the move up from the $46.14 swing low could drop prices to $50.0 should the corrective pullback extend as expected.

October natural gas’ settle below Monday’s $3.098 midpoint opens the way for a larger correction to at least $3.06. The move down is most likely corrective. However, for the move up to continue over the next few days $3.06 needs to hold. A close below this would not doom the move up but rather indicate that a deeper test of support and possible consolidation will begin to take place.

Initial resistance is $3.13, the 62 percent retracement of the decline from $3.166, so far. $3.17 is the key threshold for the near-term. A close above this would indicate the corrective pullback is over and that the move up will extend to $3.23. This is currently the most confluent objective making it another potential stalling point.

WTI Crude Oil Short-Term Forecast – November 7, 2017