Technical Failure Calls for WTI Price Decline

Category: Oil Price Forecast

Most technical factors now indicate that WTI’s upward correction has failed and that the near term WTI price outlook is negative again. Monday’s decline broke the lower trend line of a bullish ascending wedge. Formations like this break higher around 75 percent of the time, so failures like this do not generally bode well for a continued price rise.

More importantly, WTI prices are about to take out the crucial $48.2 swing low. This level is important because it is the 1.00 projection for the wave $55.05 – 48.2 – 54.92, the 62 percent retracement from $44.37 to $55.05, and the key swing low for the upward wave formation from $44.37. Taking out $48.2 would call for at least $45.5, and very likely to $43.8 and lower.

The only real hope for a continued WTI price rally in the near term would be for prices to hold $48.2. Look for resistance at $51.0 and $52.5. A close over $52.5 would call for another test of the triple top of $55.0.

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WTI crude oil is trying desperately to show that a bottom has been made and that a recovery is underway. WTI is testing a crucial decision point at $54.0. This is the 0.618 projection for the wave, $43.58 – 54.24 – 47.36. Most waves that meet the 0.618 projection extend to at least the 1.00 projection, in this case, $58.0. However, a pullback will usually take place first.

Support at $49.9 should hold, but the $47.36 swing low is the level that must hold for the near-term outlook to remain positive. A close below this would negate the wave up from $43.58, and call for a continued decline.

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CLH5

NY Harbor ULSD future’s upward correction extended to 177.7 on Monday. The primary wave 158.9 – 171.7 – 160.5, met its 1.382 projection at 177.7 and is poised to extend to the 1.618 projection of 184.2. This is the decision point for an extended correction and potential recovery. Although it is too early to say that a bottom has been made, a sustained close over 184.2 would open the way for 198.7 and 217.7. A close below 164.3 would indicate the upward correction is complete and call for 153.2 and lower.

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Brent has been trading in a corrective range for the past several days, but fell to major support at $47.7 on Tuesday. This is the 0.618 projection for the wave $52.42 – 48.07 – 50.41. The $47.7 projection connects to a major target at $45.8 as the 1.00 projection. This is also the 1.618 projection for the largest and most important wave down from the $111.38 contract high. KaseX confirms the negative call with confirmed short signals (purple triangles) on the 120-minute equivalent Kase Bar chart.

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Brent

Natural gas has finally showed some signs of life over the past few days in anticipation of tomorrow’s U.S. Energy Information Administration (EIA) Natural Gas Weekly Update. The short-term charts are showing that traders are anticipating a bullish EIA report, which would be the support the market needs to continue this upward correction. Keep in mind though, this is a correction, and it will likely be predominant in the winter month contracts and short-lived without continued support from external factors.

After oscillating in a sideways range between approximately $2.79 and $3.00 for the past six trading sessions, the February futures contract rose above $3.00 on Wednesday. This is near the $3.176 to $2.783 midpoint of $2.98, which is significant because this is also in line with the 0.618 projection of the irregular wave $2.803 – 3.176 – 2.783. The $1.00 projection of this wave was overcome at $3.15, and the 1.618 projections is $3.38. The $3.38 level is important because it is the 50 percent retracement from $3.95 to $2.783. This level will likely be met, and possibly overcome, upon a bullish EIA number tomorrow.

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In addition, February overcame the crucial $3.176 swing high, and a sustained close over this would confirm the recent bottoming formation (arguably a triple or even quadruple bottom). The projection for this formation is $3.56.

Near-term support is $3.04 and then $2.94. These are the 38 percent and 62 percent retracements of the move up from $2.783 to $3.204 (swing high as of this analysis). These levels are also near the midpoint and open of today’s candlestick. A close back below $3.04 would call into question the validity of the move up. A close below $2.94 would negate the near-term positive tone altogether, and open the way for a continued decline.

The long-term outlook for natural gas is bearish, but the move up over the past two days has shifted the near-term outlook to positive. A close over the $3.176 swing high today will open the way for an extended correction to $3.38 and possibly higher tomorrow.

For more information about Kase’s weekly energy forecasts on natural gas and crude oil please visit our energy forecast page.

Dean Rogers
Senior Analyst
Kase and Company, Inc.

February 2015 WTI crude oil broke lower out of a coil formation on Friday and continued its decline on Monday, December 29. The target for the coil is $49.8, and is in line with a highly confluent $49.7 objective that we have discussed as a potential stalling point for several weeks. A close below $49.7 would open the way for $46.9 and $45.5. Initial resistance is $56.0, the apex of the coil. Key resistance is $61.8, which is near the coil’s $62.1 upper target.

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The NY Harbor ULSD futures broke lower out of a bearish flag formation on Monday. The break lower was anticipated and then confirmed by KaseX short signals. The decline is now poised to extend to at least 188.9 and then 177.9. The latter is crucial because a close below this would call for 164.1 and 151.9. Initial resistance is the small intraday double top at 199.39. A close over this would open the way for an extended correction to 210.9 and possibly 226.0.

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HO1


RBOB Gasoline continued its decline and met a crucial target at 155.8 for the primary wave down from 315.2. The trend terminus (T = 156.3), is the lowest that most trends extend. However, there is no evidence that the decline is going to end. The next targets are 147.3 and 139.2. The KaseCD is setup for divergence and the KasePO is oversold, so a correction may take place soon. Last week’s midpoint and open are initial resistance at 168.1 and 176.5. A close over 176.5 would call for $198.3.

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Coming into this week there was an outside chance that Brent would hold $67.0. However, prices settled below $67.0 on Monday. There is immediate support at $65.2 as discussed in this week’s Crude Oil Commentary, but the decline is now poised for at least $62.8 and likely $58.5 before a measurable retracement takes place. The key target is $58.5 because it is the most confluent wave projection and the equal to (1.00) target for the wave $112.59 – 83.41 – 88.42. A sustained close below this will open the way for $53.8 and $48.7.

There is very little evidence that the move down is going to end at this time. Prices are still deeply oversold and overdue for a correction, but until at least initial resistance at $70.5 is overcome, the move down is favored. Next resistance is $72.1, and a close over the this would call for and an extended correction to $75.1 and possibly $79.8.

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