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.

WTI has primarily risen on the momentum created by the tentative agreement between OPEC members to cut production by 200,000 to 700,000 barrels per day in coming months. The details of such a deal are still being ironed out and would have to be ratified at OPEC’s meeting in November.

Some traders and analysts reportedly believe that the bullish sentiment from the OPEC announcement is now priced into the market and that further external catalyst is necessary to push prices higher. WTI showed signs of exhaustion last week. However, prices were boosted by an unexpected decline in U.S. crude oil inventories late in the week and rose to $51.6 on Monday.

OPEC detractors remain skeptical because much of the world’s oil is now produced outside of the cartel. Many pundits believe that it will take more than OPEC cuts to stabilize oil prices. To that end, Saudi Arabian and Russian officials are set to meet in Istanbul this week to discuss such matters. However, several reports indicate comments made by Russia’s energy minister dampened hopes that an agreement would be reached during their meeting.

The technical outlook for WTI is bullish, but there have been a few signs of weakness. The recent wave formation up from $43.06 is overextended, the Stochastic is overbought, and most momentum indicators are setup for daily bearish divergences. Although there is no definitive technical evidence the move up will stall, a correction should take place soon.

November is approaching key resistance at $52.6. This is the point at which the wave formation up from contract low connects with the wave up from early August’s low. $52.6 is the 0.618 projection for the wave $34.1 – 53.39 – 40.77 and the 1.00 projection for the wave $40.77 – 50.0 – 43.06. A close over $52.6 would open the way for a longer-term bullish outlook with targets in the upper $50s and low $60s. WTI should rise to $52.6. However, given the importance of this level, we expect to see a correction before $52.6 is overcome.

Should prices turn lower before rising to $52.6, look for initial support at $50.5 and then $49.6. A close below the latter would call for an extended correction to $48.3. A normal correction should hold $48.3 because it is the 38 percent retracement of the move up from $43.06. A close below this would call for a more substantial correction before the move up continues.

This is a brief analysis and outlook for the next day or so. Our weekly Crude Oil Commentary and intra-week updates are a much more detailed and thorough energy price forecast. If you are interested in learning more, please sign up for a complimentary four-week trial.

November natural gas has shown signs of strength over the past few days. November held support near $2.90 and on Tuesday completed a daily hammer when prices settled above $2.94. A bullish RSI divergence was confirmed at $2.866 on several intra-day charts. On Wednesday, the move up rallied to a very important $3.05 target ahead of the close. Finally, as of Wednesday, the weekly candlestick forms a bullish engulfing line.

These positive factors indicate the move up should continue to $3.09, $3.12, and possibly $3.18 over the next few days. A move to these targets would also take out the crucial $3.079 swing high. This would significantly dampen the odds for a continued decline to targets below $2.90.

That said, $3.05 is a potential stalling point. This is because $3.05 is the 62 percent retracement of the decline from $3.166 to $2.866 and the 1.00 projection of the wave $2.866 – 2.99 – 2.922. There are no definitive factors that indicate the move will stall at $3.05, but caution is warranted.

Should prices pullback from $3.05, support at $2.98 should hold. The key level for the near-term is $2.94. This is the 62 percent retracement of the move up from $2.866 to $3.058. A close below $2.94 would call for another test of the $2.866 swing low and most likely signal that a trading range is forming.

This is a brief natural gas forecast for the next day or so. Our weekly Natural Gas Commentary and intra-week updates provide a much more detailed and thorough analysis. If you are interested in learning more, please sign up for a complimentary four-week trial.

Bullish optimism regarding OPEC’s preliminary agreement to cut crude oil production has reportedly fueled the move higher during the past week. The news came last Wednesday after members met during a conference in Algeria. OPEC will meet again on November 30 to further discuss and possibly ratify the deal. However, many are still skeptical that an OPEC deal will be enough to balance supply and demand if production is minimally cut or capped near record output levels.

Technical factors reflect the underlying bullish sentiment. The monthly and weekly candlesticks are positive and call for the move up to extend. In addition, November WTI overcame the $48.38 swing high. This was important because the move above $48.38 takes out the primary wave down from $50.0 and significantly dampens odds for a continued decline in the near-term.

On Monday, an important target was met at $48.9. The waves that projected to $48.9 now call for November to challenge the $50.0 swing high. Overcoming $50.0 would solidify a near-term bullish outlook and call for key resistance at $52.3. The $52.3 objective is the gateway for a longer-term bullish outlook.

That said, bearish divergences were triggered on the $1.00 Kase Bar chart early Tuesday. Therefore, a correction might take place before the move up extends to $50.0. There is initial support at $48.0 and then $46.9. The latter is expected to hold. A close below $46.9 would call for $46.0 and then key support centered around $45.0 to possibly be tested.

Reports indicate increasing OPEC exports out of Nigeria and Libya and a partial shutdown of a major U.S. gasoline pipeline weighed on crude oil prices last week. In addition, U.S. rig counts rose to 416, the highest level since February.

That said, some traders are turning their attention to the late September meeting between members of OPEC and Russia to discuss capping production. However, pundits think any meaningful consensus coming out of the meeting is unlikely.

The majority of technical factors are negative and call for crude oil’s decline to continue.

Early Monday, November WTI rallied to $44.7. However, the move up stalled and failed to settle above Friday’s $44.32 open. A bullish Harami line and star setup formed, but the long upper shadow indicates the pattern will likely fail.

Tomorrow, look for at least $43.1 and possibly $42.7. Both targets connect to major support at $42.1, which is a confluent projection for the primary waves down from $50.0 and $48.38. This is also the last major target protecting the $40.77 swing low. Therefore, $42.1 may hold, at least initially.

Resistance at $44.3 is still important for the near term. However, key resistance for the next day or so will be $44.7. A close over this would call for an extended upward correction to $45.3, $45.9, and possibly $46.5.

Natural gas continues to oscillate in an erratic and corrective range. After stalling near $3.00 on July 1, the prompt-month futures contracts have challenged the boundaries of a range between nominally $2.53 and $2.95. This is similar to the range that natural gas traded in for nearly nine months of 2015 before breaking lower in mid-September.

Longer-term, the outlook is positive and natural gas will likely rise to targets above $3.00 before the end of the year. However, since July 1 there has not been enough fundamental support to sustain a move above $3.00. The summer was hot this year, and demand was strong, but production kept pace. The market is well supplied and will likely end the injection season near or just above historically high storage levels as winter approaches.

Many long-term technical factors are positive, but there are short-term factors that indicate another test of support is looming.

Early Wednesday, October natural gas rose above the very important $2.949 swing high and was poised to overcome the July 1 high of $3.022. However, October stalled at $2.978 and fell to $2.852. The reversal and blow-off high indicate the market is not ready for a break higher out of the corrective trading range.

The recovery from $2.852 at the end of the day was somewhat positive. However, momentum is setup for bearish divergence on the daily chart. A bearish divergence forms when prices are rising to new swing highs but momentum is making lower highs. This signal shows that the move is nearing exhaustion and that a statically significant turn may take place. To confirm the divergence, a swing high in price and momentum must form over the next few days.

A close below $2.87 will complete Tuesday’s shooting star reversal pattern and open the way for $2.83 and $2.72.

If the move up is going to close over $2.95 and rise to the next target at $3.03 soon, $2.83 should hold. This is the 38 percent retracement of the move up from $2.58.

Key support is $2.72 because it is the 0.618 projection of the wave down from $3.022 and the 62 percent retracement of the move up from $2.58. A close below $2.72 would call for another test of the recent ranges lower threshold.

Charts tell us what the market knows about itself, and right now, WTI crude oil is confused. There are many competing fundamental, technical, and geopolitical factors in play at the moment. Therefore, no one factor has a clear and decisive edge over the others.

October WTI is oscillating in a corrective range and will most likely continue to do so until there is a sustained close over $52.4 or below $41.3. These are the points at which the larger scale wave projections up from $39.96 and down from $53.02 merge with the most recent projections up from $43.0 and down from $49.36, respectively.

These waves also show how the connections are made to the important $52.4 resistance and $41.3 support levels.

The longer-term favors a move up, but in the near-term look for a test of at least $43.8 first. A close below this would call for $41.3. A sustained close below $41.3 is doubtful without help from external factors, but would call for a longer-term bearish outlook.

Should October WTI close over $46.6, near-term odds would shift in favor of $47.7, which is the 0.618 projection of the wave up from $43.0. This wave makes a connection from $47.7 to $49.5 and ultimately $52.4. A sustained close over $52.4 would call for the bullish move up to extend to new highs for 2016.

According to some pundits, natural gas’s recent move up is due to improved balancing of supply and demand. Government data shows the degree to which inventories are up this year relative to the five-year average has continued to shrink. It has been a hot summer, and demand has remained relatively strong.

That said, production has done well to keep pace with demand during summer, and there is a limit to the amount of gas that can be stored. Many analysts project that injection season will end at or near record levels again this year. Therefore, the market should be well supplied ahead of winter.

Fundamental factors will rule the longer-term. However, there are still many questions that need to be answered over the next six to eight weeks before the market can realistically determine a longer-term direction. For the near-term, a trading range between nominally $2.55 and $2.95 is still the most logical conclusion for now. Keep in mind, for nearly nine months of 2015 the prompt month futures contract traded in this range.

From a technical standpoint, October natural gas was poised to rise to $3.04 after overcoming resistance at $2.86 the $2.947 swing high late last week. The pullback from $2.949 is likely corrective and stalled near $2.81 on Wednesday. This is the 38 percent retracement of the move up from $2.58 and the 1.618 projection of the wave down from $2.949.

If the move up is going to extend to new highs in the near term, $2.81 needs to hold. In addition, October will need to finally close over $2.95. Otherwise, a close below $2.81 would signal trading range and call for confluent support at $2.71 to be challenged.

This is a brief natural gas forecast for the next day or so. Our weekly Natural Gas Commentary and intraweek updates provide a much more detailed and thorough analysis. If you are interested in learning more, please sign up for a complimentary four-week trial.

On Friday, WTI crude oil prices pulled back sharply after the U.S. Federal Reserve signaled short-term interest rates may be raised in coming weeks. The U.S. dollar rose, and oil prices fell. The week ended on a negative note, and the corrective pullback extended again on Monday.

Aside from the stronger dollar, media outlets also indicate traders and analysts are weighing the potential consequences of a still oversupplied market against the prospects of a production freeze. Last week, DOE data showed U.S. inventories of oil and refined products have risen to a record high. However, Iran has reportedly shown interest in joining talks with other major producers regarding measures to freeze production in a unified effort to stabilize prices.

The longer-term technical outlook for oil remains positive. However, near-term factors indicate the corrective decline should continue to extend first. October WTI met the 0.618 projection of the wave $49.36 – 46.42 – 48.46 on Monday. Nearly 80 percent of waves that meet the 0.618 projection extend to the 1.00 projection. Therefore, odds favor $45.5 before the move up continues.

The $45.5 target is important because it is near the 38 percent retracement of the move up from $39.96 to $49.36. A “normal” correction should hold $45.5. A close below $45.5 would open the way for an extended correction and potential trading range in the mid-to-upper $40s.

The move down will remain choppy, but over the next few days look for resistance at $47.9 to hold. Key resistance is $48.7. A move to $48.7 would take out the wave down from $49.36 that projects to $45.5 and lower.

This is a brief analysis and outlook for the next day or so. Our weekly Crude Oil Commentary and intraweek updates are a much more detailed and thorough energy price forecast. If you are interested in learning more, please sign up for a complimentary four-week trial.

Media sources indicate natural gas prices rose for the third straight session on Wednesday due to concerns that a storm could enter the Gulf of Mexico. However, hurricane threats to production are not as alarming as they had been in the past. The Gulf of Mexico accounts for less than five percent of domestic natural gas production. Most production has moved onshore due to the shale boom in recent years. In fact, many analysts, including ourselves, believe that a hurricane in the Gulf of Mexico would rather lead to decreased demand due to power outages and other disruptions.

Whatever the reasons (and there are likely many) for the increase in natural gas prices over the past few days, it is doubtful that a storm or hurricane entering the Gulf of Mexico will do much in the way of bolstering a price spike.

From a technical perspective, September natural gas rose to key resistance at $2.81 early Wednesday. This is the 62 percent retracement of the decline from $2.99 to $2.523 and the 1.382 projection of the wave $2.523 – 2.697 – 2.569. The 1.618 projection is $2.85, which is also near the trend line connecting $2.99 and $2.911. A close over $2.85 would call for $2.911 to be overcome and for prices to possibly challenge $2.99 and higher.

That said, the range between $2.81 and $2.85 is a prime area for the move up to stall. Wednesday settled at $2.796 and prices have already started to pullback in late trading Wednesday afternoon. Look for initial support at $2.76 and $2.71. The latter should hold if the move up is going to continue because it is the 38 percent retracement from $2.523 to $2.819. The 62 percent retracement of this move defines key support for the near term at $2.64.

The most likely scenario right now is for prices to settle back into a trading range between nominally $2.64 and $2.85. This range dominated trading for most of July and could become dominant again in coming weeks as we move into the heart of shoulder month trading ahead of winter.

Technical analysis is technical. This means there are mathematics, charts, and statistics involved. Some interested in studying and using technical analysis are dismayed when they encounter numbers and charts. A math, engineering, science, or financial degree is not required to make use of technical analysis. However, an orientation towards structuring a view of reality mathematically is helpful.

Some people think technical analysis is a way to quickly make a lot of money, become a hotshot trader, or a means to finding the “Holy Grail” of trading systems. Technical analysis is certainly a means to success, but there is no way to get around the need for commitment and perseverance. Success in using technical analysis, like any endeavor, will take hard work, commitment, and perseverance.

The Four Aspects of Technical Analysis

When using technical analysis there are four basic applications: instrument selection, timing trade entries and exits, managing risk, and forecasting.

Technical analysis can be used to select instruments to trade. For instance, if a trader wanted to scan the 1,000 most active stocks and pick the instrument most likely to take a sharp turn, they could use technical momentum indicators such as the MACD or RSI to look for divergence. Divergence is a momentum signal that is triggered when a trend is exhausted. If a divergence occurs, it is likely that the instrument is getting ready to turn in a statistically significant manner. The trader can then decide to further analyze and possibly trade that instrument.

Once a trader has selected an instrument they can use technical analysis to determine the instrument’s direction, strength and extent of potential trends, support and resistance levels, potential turning points, and risk.

Technical analysis is, as the name implies, a study or examination of the market. The analogy commonly used in technical forecasting is that it is similar to cartography or map drawing. In other words, you are drawing a map of how to get from point A to point B.

Once the map has been drawn and the forecast is complete a trader can use technical indicators, geometric formations, and other methods of analysis to determine entry and exit point for the market. This is called market timing, and is one of the greatest strengths of technical analysis.

Example of Using Technical Analysis

In the daily chart below as natural gas prices fell to new price swing lows the RSI momentum indicator was making higher lows. This was a clue that the decline was exhausted and that a significant turn higher was about to take place. A trader with a short position would possibly cover the positon once the divergence was confirmed (green trend lines).

After covering the short trade, the trader could then time a long entry when the 10-period moving average (red line) crossed above the 20-period moving average (blue line). This crossover is shown within the red circle. When the fast moving average (10-period) rises above the slow moving average (20-period) it suggests the move up should continue because there has been an upward shift in momentum.

Once the long trade has been taken, the trader can then begin to identify resistance levels using other methods of technical analysis. In the example above, a series of Fibonacci retracements from the $2.495 swing high to the $1.611 swing low are shown to the right of the chart. The 38.2, 50, and 61.8 percent retracement levels of this move were identified as resistance well ahead of being met. Note that at each of these levels a small turn lower or trading range took place. Ultimately, the move up held near the 61.8 percent retracement (pink ellipse) and turned lower again.

Conclusion

Technical analysis is a means of analyzing and interpreting what the market knows about itself. As discussed, the tools within the practice of technical analysis are useful for instrument selection, timing trade entries and exits, managing risk, and forecasting. By learning and using technical analysis, one can become a better trader by gaining a deeper level of insight into the markets they trade.

Crude Oil Forecast: WTI Approaching Key Resistance

The Four Aspects of Technical Analysis

Example of Using Technical Analysis

Conclusion