Crude Oil Forecast: WTI Pullback Tests Major Support

By Dean Rogers

Last week’s break higher out of the bullish pennant was positive and the move up extended to meet the 0.618 projection of the wave $38.51 – $50.04 – 43.71. However the move stalled there, formed a bearish evening star and blow-off high, and then proceeded to test $46.4, the 62 percent retracement of the move up from $43.71.

CLX5 20151013

The market is telling us that it needs more time to sort itself out as it awaits more data. We have stated that the move up would likely be a grind higher, and so far that has been the case.

For now, another trading range will likely form between $46.4 and $50.0. Look for resistance at $47.4 and $48.2.

Should prices fall below the $43.71 swing low the outlook will shift back to negative for the longer-term.

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

By Dean Rogers

November natural gas had worked its way higher to challenge key resistance at $2.53 over the past few days after meeting major support at $2.403 last week. The move up has been shallow and choppy compared to the decline and could be interpreted as a bearish expanding wedge. The market also keeps giving back its intraday gains at the end of each day, which indicates hesitance to continue higher. This point is emphasized by the formation of an intraday double top at $2.53.

NGX15 20151008

The completion point for the double top is $2.45, which is also in line with the wedges lower trend line. A close below this would confirm the double top and a break lower out of the wedge, opening the way for another test of $2.40 and possibly lower.

That said, a few positive factors, including bullish daily divergences and a morning star still show that the upward correction could extend to $2.60. The key for a move of this magnitude is for $2.45 to hold and a close over $2.53. The latter is the morning star’s confirmation point, the 1.00 projection for the wave $2.403 – 2.491 – 2.436, and the 38 percent retracement from $2.72 to $2.403.

On balance, with all factors considered, it is looking more and more like natural gas will settled into a trading range between $2.40 and $2.53 for a few weeks while awaiting external factors (weather) to sort out the direction for the next few months.

This is a brief natural gas forecast. Our weekly Natural Gas Commentary is a much more detailed and thorough analysis. If you are interested in learning more, please sign up for a complimentary four week trial.

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“Ask Kase” and your question may be chosen as the subject of a future column (askkase@kaseco.com).

With VW cheating on diesel fuel emissions and standards being scrutinized worldwide, interest in electric vehicles may increase longer-term, and medium-term, gasoline fueled vehicles might pick up. But will gasoline prices get a boost any time soon? Probably not.

December gasoline, which becomes prompt in two days, traded up to $1.4604 at the end of August. Since then it’s been caught in a downward oscillating pattern, but remains above its earlier $1.1756 low.

Odds favor the downside. This was a large down month which prevented a bullish reversal pattern from completing. On the daily chart, the decline to and bounce up from $1.1756 was a bullish V-bottom but failed. The decline from $1.4604 was interrupted by a bullish flag which has since broken lower. The perpetual has been steadily dropping since mid-June, only going into a sideways stall during the past two weeks.

RB-Fig1

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Odds of a recovery are higher than for a normal trending market. The decline from $1.4604 only met the minimum 0.62 extension. The decline has also been shallow.

Two very strong layers of support are $1.235 and $1.205, respectively the 78 percent and 89 percent retracements of the $1.1756 to $1.4604 rise. $1.235, less than one cent above the perpetual’s January low, is important because it’s only generated by the waves down from $1.4604. For the six waves down from this price, $1.235 is a wave extension for five, and as a corrective projection for three. Thus, should $1.235 hold, there is no connection to larger, earlier waves which project to lower levels. The next layer at $120.5 connects back to the mid July $1.5828 high. This support level could engender a trading range between the $1.20s and $1.50s, so watch out for that.

Even though the previous low of $1.1756 is natural support, a close below $1.205 could trigger a steep decline down to $1.06. This is because the wave extensions tie the two prices together. The wave 158.28 – 117.56 – 146.04 targets $1.205 as the 0.62 extension and $1.06 as the equal, 1.0, extension. 140.46 – 130.04 – 133.73 targets $1.205 as the 1.38 extension and $1.06 as the 2*1.38 extension. The point is that should there be a close below $1.205, the pull from $1.06 grows.

Adding to that pull is that $1.06 is the 89 percent retracement of the move up from the 2008 low of $0.785 to 3.48. Hitting $1.06 could cause a slide below the $1.00 level.

So watch to see if the two targets in the $1.20s hold – or not.

A close over $1.375 would argue for concern that the move up from $1.1756 will extend. That’s the price above which I wouldn’t hold short-term short position. Above $1.4604 the contract is in for a further recovery. Either way, moderate prices, well below prices should prevail. So fill up the tank, and get on the road before December snows slow you down!

Send questions for next week to askkase@kaseco.com, and click the link to learn more about Cynthia Kase’s latest video series, Kase on Technical Analysis.

By Dean Rogers

After the late August rally WTI settled into a narrowing range that forms a pennant. This is a continuation pattern that indicates odds favor a break higher. However, these odds are somewhat dampened due to the price rise that took place before their formation was small in comparison to the size of the formation. In addition, more than half of the price rise has already been eroded.

wti crude oil

The small wave up from $43.71 indicates that a close over $46.0 would call for $47.0, which is in line with the top of the pennant.

We like support at $44.1 to hold, but $43.0, near the 62 percent retracement of the move up, is the key for a negative outlook.

On balance, even if prices break higher or lower out of the pennant, we could see crude oil continue to oscillate in a wider range for another few weeks while the market sorts out fundamental and geopolitical factors.

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

By Dean Rogers

Natural gas had oscillated in an expanding triangle since August 24. Monday’s break higher out of the pattern was positive, but stalled at $2.794, the 50 percent retracement from $2.959 to $2.632.

The move to $2.794 was healthy because the decline had become stale. The rally gave bears a new opportunity to short the market.

Tuesday’s close below Monday’s $2.73 midpoint formed a daily dark cloud cover (bearish), and Wednesday’s close below $2.70 confirmed the pattern. This is also in line with the 62 percent retracement from $2.632 to $2.794.

natural gas

Caution is warranted and trading will likely remain choppy, but the bearish technical factors indicate another test of $2.63 is expected. A close below this would open the way for the decline to $2.55 and lower have expected for several weeks.

This is a brief natural gas forecast ahead of tomorrow’s EIA report. Our weekly Natural Gas Commentary is a much more detailed and thorough analysis. If you are interested in learning more, please sign up for a complimentary four week trial.

targetBy Dean Rogers

It has been a wild week on Wall Street and for markets around the world. Global equities have ridden a roller coaster in the U.S., Asia, and Europe, the U.S. Dollar strengthened a bit after a tumultuous decline, and oil is trying to find its bottom after a significant rally to $42.86 from our weekly commentary’s $37.9 target.

U.S. 10 Year Treasury bonds have come along for the ride and have fallen to 127’18 so far after stalling at 129’28. The 129’28 high was just above our June 30, 2015 projected resistance of 129’16.5. At this point, as shown in the chart below, bearish momentum divergences formed when rising price highs were accompanied by falling momentum highs on the KaseCD, MACD, and slow stochastic.

TY daily

The divergences show that the decline will likely extend. However, there are several positive technical factors that indicate an upward correction should take place first.

The daily candlestick chart above shows a morning star setup that formed on August 27. The confirmation point (open of August 26) is 128’18. This resistance level is also in line with the 38 percent retracement of the decline form 129’28 as shown in the chart below. Should the decline extend as expected over the next few days, 128’18 must hold. A close over this would call for 128’31.5, the 62 percent retracement.

TY weekly

The wave formation down from 129’28, shown in green below, met the 0.618 projection at 127’18. Most waves (our studies show around 77 percent) that meet the 0.618 projection extend to at least the 1.00 projection, in this case 126’27. Therefore, odds favor at least 126’27. This is in line with the 62 percent retracement of the move up from 124’29 as shown in the daily chart (in blue). A close below 126’27 would call for 126’08 and 125’26.

In summary, for the near-term, these technical factors indicate U.S. 10 year treasuries should decline to at least 126’27, but that a small correction to 128’18 might take place first. The longer-term targets are discussed in our original article published June 30, 2015.

By Dean Rogers

Natural gas continues to hold the lower end of the trading range between $2.65 and $2.95 on a closing basis. October natural gas futures stalled at $2.641 and subsequently formed a bearish flag (blue trend lines). Flags are generally a reliable type of continuation pattern, which means the flag should break lower soon. The next targets are $2.62 and $2.55.

natural gas

A daily morning star setup (not shown) indicates the upward correction may extend. Resistance at $2.75 should hold. This is the 38 percent retracement from $2.959, the 62 percent retracement from $2.816, and the 1.382 projection of the wave up from $2.641. A close over $2.75 would confirm the morning star and call for an extended correction $2.80 and possibly $2.85.

Overall, our bias remains negative. Therefore, even if prices rose to test resistance we expect $2.75 to hold and for natural gas to continue its decline.

This is a brief natural gas forecast ahead of tomorrow’s EIA report. Our weekly Natural Gas Commentary is a much more detailed and thorough analysis. If you are interested in learning more, please sign up for a complimentary four week trial.

By Dean Rogers

Technical analysis provides traders and market analysts with extremely valuable tools that can help determine future support and resistance and major turning points. A good example of this came from our recent article Ask Kase: How to Trade the Shanghai Index that was published on June 9, 2015 by Cynthia A. Kase, CMT, MFTA. Ms. Kase’s analysis lead her to call for an overdue downward correction of the Shanghai Composite Index (SSE) once resistance at 5200 was met within a +/- 50 point tolerance. SSE rose to 5178.19 on June 12, before turning lower and eventually transitioning into the bearish collapse that has transpired over the past several weeks.

The market has blown through Ms. Kase’s lowest support level of 4550, below which she stated, “a much more sustained decline would commence”. She hit the nail on the head, and now, the techncials are showing us that SSE is poised for at least 2300 after a potential upward correction from 2947.94.

The decline from 5178.19 forms a very clear nested wave formation that has two primary waves: 5178.19 – 3373.54 – 4184.45 (blue) and 4184.45 – 3537.36 – 4006.34 (green). Both waves project to 2300 +/- 80 points. This is a very important target and potential bottom for SSE because it is the 1.00 projection for the wave down from 5178.19 (blue) and the 2.764 projection for the wave down from 4184.45 (green).

shanghai composite index waves

A sustained close below 2300 would call for a much more severe collapse to 2034, 1710, and possibly 1275.

As stated though, an upward correction might take place from 2947.94 before the decline continues. This is because both of the waves down from 5178.19 and 4184.45 met crucial projections around 3000. The 3000 level was also in line with the 62 percent retracement of the move up from the October 2008 swing low of 1664.93 to 5178.19.

To say the least, 3000 is important support, so a small correction to 3350, the 38 percent retracement of the decline form 4006.34 would be normal.

Retracements to 2947.94

shanghai composite index retracements

Key resistance for the near term is 3585, the 62 percent retracement from 4006.34 and the 50 percent retracement from 4184.45. A close over 3585 would open the way for 3755, the 62 percent retracement from 4184.45 and the 38 percent retracement from 5178.19. This is the level that must hold for the outlook to remain negative for at least the next few weeks.

A daily morning star setup (not shown) confirms that the upward correction might take place within the next few days. However, most momentum indicators show that a pullback will be nothing more than a temporary correction.

The weekly stochastic moved below 20 and is oversold, but it can remain there for weeks (or even months) before the index reverses significantly higher. All other momentum indicators, including the KaseCD and KasePO show declining momentum, which does not bode well for the formation of a bottom soon.

shanghai composite index weekly momentum

In summary, most technical factors are negative and odds favor a decline to at least 2300. A pullback from 2947.94 might take place first, but weekly and daily momentum indicators show that such a move will likely be corrective and should hold resistance at 3350 and no higher than 3585. Therefore, for now, buckle in for the rest of the ride lower.

Learn more about Kase’s trading indicators such as the KasePO and KaseCD, weekly crude oil and natural gas forecasts, and other services, at www.kaseco.com.

By Dean Rogers

On Friday evening I sat down to write Kase’s detailed weekly forecasts on WTI crude oil and Brent with an image of Chicken Little running around warning all of his pals that the sky is falling. This is a feeling that resonated with many market participants around the world as stock indices and commodities have plunged lower.

The reality is WTI and Brent will find a bottom soon, and there are logical/technical points at which these bottoms could form. From a technical standpoint, WTI crude oil is already well oversold and due for a correction. There are daily and weekly divergence setups on many momentum indicators, including our own KaseCD and KasePO, but this has been the case for weeks. Therefore, until a significant retracement takes place, reversal patterns form, and the daily and weekly momentum divergences are confirmed, the outlook will remain negative.

WTI met major support at $37.9 when it fell to $37.75 early Monday and settled at $38.24. Given today’s price action though, it looks as though the decline is going to continue to extend. WTI pulled back to $39.5 where an intraday double top formed, and the pattern was confirmed when prices fell below $38.3. The projection for the double top is $37.1. Look for at least $37.52, the 1.618 projection of the wave down from $39.5, and then $37.1 tomorrow.

crude oil

The small pullback from $37.83 may extend to $38.45 and even $38.88 first. The 38 percent retracement of the decline from $39.46 to $37.83 is $38.45 and the 62 percent retracement is $38.88. The latter is also the 0.618 projection of the wave up from $37.75 and is expected to hold. A close over this would call for an extended upward correction.

This is a brief analysis and outlook for the near-term. Our weekly Crude Oil Commentary is a much more detailed and thorough energy price forecast. If you are interested, please sign up for a complimentary four week trial.

Cows in a high mountain pastureBy Dean Rogers

Who could ever forget the iconic 1984 Wendy’s commercials featuring three little old ladies yelling “where’s the beef?”(If you are too young to remember treat yourself to taking a minute to watch.)

The commercials and the phrase “where’s the beef?” spawned a cultural catchphrase that has since become a statement questioning the value and substance of a product. The value of beef, priced in live cattle futures, has tripled since 1984, but a downturn in prices over the past 10 months begs the question, “where’s the beef going?”

On October 31, 2014 the perpetual (first nearby) live cattle futures contract rose to an all-time high of 171.975 cents per pound. Since then, prices have fallen in a corrective manner and recently came very close to meeting major support at 141.35. This is a highly confluent target that serves as a series of Fibonacci projections for the waves down from 171.975 (blue), 164.25 (green), and 156.475 (red) as shown in the chart below.

live cattle support

A close below 141.35 would open the way for the decline to continue to at least 135.6 and very likely 131.4. The latter is another highly confluent wave projection and potential stalling point, but the key target for live cattle futures is 127.0. This is the 1.618 projection of the largest and most important wave down from 171.975 (blue) and the more recent wave from 156.475 (red).

The decline from 171.975 is no doubt a correction of the long-term move up, and corrections normally hold the 1.618 target. Therefore, we expect to see a significant pullback and potential bottom form at 127.0. However, a sustained close below this would open the way for an extended decline to 122.05 and possibly 112.0.

The decline has stalled at 142.25 for now, and so far the subsequent rise to 150.85 is most likely a small correction of the move down (yes we are talking about corrections of corrections). The recent move up is most likely being driven by a typical seasonal boost for beef ahead of Labor Day.

The upward correction may extend, but 153.4, the 1.00 projection of the wave up from 142.25 (pink) and the 38 percent retracement of the decline from 171.975 should hold. The connection to 153.4 is made through the 0.618 projection of 149.8.

live cattle resistance

Based upon most technical factors as of this analysis, we don’t expect to see prices rise much higher than 153.4. This is a very important level not only because it is a confluent retracement and wave projection, but it also protects the 156.475 swing high. A move above 156.475 would take out of the waves down from this swing high and from 164.25. As a result the likelihood of a decline to or below 141.35 would be significantly dampened.

Therefore, upon a close over 153.4 odds would shift in favor of an extended upward correction to 156.8 and likely 159.5, a crucial target because it is split between the 1.618 projection of the wave up from 142.25 and the 62 percent retracement of the decline from 171.975. A sustained close over 159.5 would indicate the decline from 171.975 is over and would call for 168.5 and higher.

So to answer the question “where’s the beef going?”; technical factors show that prices will most likely fall once the Labor Day demand boost passes. Look for resistance at 153.4 to hold and for 141.35 to be challenged again. A close below 141.35 will call for 135.6, 131.4, and 127.0.

Check out Kase on Technical Analysis to learn more about trading and forecasting price using technical analysis.

Charts created using TradeStation. ©TradeStation Technologies, Inc. 2001-2015. All rights reserved. No investment or trading advice, recommendation or opinions are being given or intended.