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By Dean Rogers

Crude oil has taken on a strong bearish tone. There is very little technical evidence, and even less fundamental evidence, that the decline is going to end. However, it is almost always darkest before dawn and there are a few factors that show a correction should take place soon.

Last week’s update discussed major support at $47.0 for WTI and September Brent crude oil is quickly approaching major technical support at $52.8. This is the 1.618 projection for $71.37 – 62.3 – 62.49, the 0.618 projection for $67.49 – 55.6 – 59.9, and the lower Bollinger Band. The KasePO, shown in the middle panel of the chart above, and KaseCD, in the bottom panel, are setup for divergence and nearly in oversold territory. These factors indicate $52.8 is a potential stalling point and that a correction might take place before the decline continues to the next targets.

A normal correction will hold $55.6, the 38 percent retracement from $59.9. Key resistance is $57.2, the 62 percent retracement. We expect $55.6 to hold before the next leg lower takes place.

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.

After the 4th of July weekend the energy markets, unlike the weather across most of the U.S., heated up. The lack of warm summer weather in key areas of the county has given way to lower prices for natural gas. August natural gas futures finally closed below $2.73 on Tuesday and Wednesday. The move has been quiet relative to the noise being made by crude oil, but the break lower indicates prices should continue to decline. That said, the bullish KaseCD divergence and KasePO PeakOut (oversold signal) on the $0.035 Kase Bar chart indicate the decline will be a grind.

The wave $2.977 – 2.733 – 2.885 took out its 0.618 projection at $2.73, therefore odds favor at least $2.64, its 1.00 projection. This is a highly confluent and important target that protects the $2.588 swing low. We expect to see a bounce from $2.64 given its importance. A close below $2.64 would call for $2.55 and $2.50.

The 38 percent retracement from $2.885 to $2.676 is $2.76. Key near-term resistance is $2.81, the 62 percent retracement. Both levels are in line with the two previous intraday swing highs of $2.756 and $2.80. A close over $2.81 is unlikely unless tomorrow’s Energy Information Agency (EIA) report is extremely bullish.

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.

Last week we discussed the chart below and the importance of $2.92 as the 0.618 projection of the wave up from $2.54 (not shown) and the 62 percent retracement from $3.15. The chart is being shown again, with a few updates, because not much has changed over the past week.

The crucial $2.92 level has been tested four times now, including this morning’s brief excursion to $2.955. Because prices failed to close over $2.92 again, we expect to see another oscillation lower to challenge support at $2.80. This is the 38 percent retracement of the move up and is near Monday’s $2.83 midpoint and Tuesday’s $2.831 low.

The bearish KaseCD and KasePO divergence and the DevStop2 hit on the $0.035 Kase Bar chart support the move lower and test of $2.80 tomorrow.

Tomorrow’s EIA may be the catalyst the market needs to either close over $2.92 or below $2.80. A close over $2.92 has strong bullish implications as discussed in our weekly natural gas forecast. A close back below $2.80 would call for another test of support and possibly the contract lows. For now, $2.92 and $2.80 are the levels to watch for clarification of the near-term, and possibly the longer-term, direction.

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

The price of natural gas, or any commodity for that matter, is theoretically the fair price at a given time. Traders will buy gas when they think prices are going to rise, and sell it when they think it will fall. This may be oversimplifying the process a bit (okay, a lot), but the point is that rising and falling prices are reflected on charts.

Charts tell us what traders and other market participants think about the market and the actions that they are taking (buying or selling). Interpreting price action on charts is the forte of technical analysis. Therefore, technical analysis is good at telling us what the market knows about itself, especially for the near-term.

For the long-term, technical analysis can be used as a guide, but people change their minds, and therefore, so does the market. When these changes of heart and mind take place, so does the direction of the market and the reflection of price action on the charts. As a result these changes are reflected in the underlying technical factors too.

Here is what we are currently seeing on the daily chart and the $0.035 Kase Bar chart:

Tuesday’s close above Friday’s midpoint was positive but the $2.716 open held.
The move up was corrective and about the same size ($0.125) as prior corrections from $2.902 ($0.136) and $2.788 ($0.099).
The KaseCD and KasePO momentum indicators are declining.
The underlying KEES permissions (color-coded dots) are transitioning back to being short.

Therefore, for the near-term, the natural gas charts are tell us that prices will continue to decline to at least $2.54. This is a confluent support target and is the July contract’s low. It is too soon to say that prices will stall here. In fact, other than a correction once $2.54 is met, most technical factors call for prices to continue to decline to major targets we discuss at great length in our weekly Natural Gas Commentary.

Resistance at $2.79 is the 38 percent retracement of the decline and expected to hold. This threshold will be lowered to $2.76 once $2.54 is met.

WTI crude oil prices have been oscillating in a downward sloping channel for the past few weeks and the decline has formed a bullish continuation pattern. Although the formation is not a perfect flag, pennant, wedge, or triangle, it does appear to be corrective. More often than not corrective patterns like this ultimately break higher and the original up trend extends.

Crucial support at $57.0 held on a closing basis last week and Friday’s move up and the attempt to close over the upper trend line of the formation on Monday indicates prices should rise to at least $61.6 over the next few days.

Monday’s hanging man is negative, but so far Friday’s $59.13 midpoint has held. This is also the 38 percent retracement of the move up. A close below this would complete the hanging man and call for another oscillation lower to test support and possibly the lower trend line of the corrective formation.

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 WTI and Bret crude oil price forecast. If you are interested, please sign up for a complimentary four week trial.

For the past few weeks WTI crude oil prices have risen significantly, and for the first time since early December 2014 prices closed above $60.0 last week. However, many traders are questioning the long-term validity of the price rise continuing due to concerns of a persistent supply glut, and the technical factors show that the market reached a crucial decision point at $62.58 last week.

The June WTI futures contract met crucial resistance at $62.58 on Wednesday, May 6, and as called for in our weekly Kase Crude Oil Commentary, prices have begun to pullback in a corrective manner. The correction is taking place after a blow-off high and evening star setup formed that same day. The evening star (some might say shooting star) was both completed and confirmed on Thursday when prices closed below the midpoint and open of Tuesday’s Harami bar. In addition, bearish divergences on the KaseCD and KasePO were confirmed on Friday. The combination of negative short term technical factors indicates the downward correction should extend and will likely form Wave IV of a longer-term five wave formation that projects to target in the mid-to upper $60s and even the low $70s.

We expect the pullback to challenge at least $56.2. This is the 38 percent retracement of the move up from $45.93 and is near the bottom of the sub-wave 4 of III. If prices are going to extend to new highs in the next week or so, $56.2 must hold. Otherwise, a close below $56.2 would call for the 50 and 62 percent retracements at $54.3 and $52.3. For now, it looks as though $56.2 will hold. The long-term outlook would only shift back to being bearish upon a close below $52.3. We do not expect to see a decline of that magnitude.

Today’s decline was nominal, so the next few days will be crucial for the near-term direction. A close over last Thursday’s $59.82 midpoint would shift the near-term outlook back to positive, call for another test of $62.5, and likely open the way for the five-wave pattern to unfold to upper targets of $66.8 and $71.5 over the course of the next few months.

Take a trial of Kase’s weekly crude oil forecasts to receive more in-depth analysis every week.

It is hard to deny the strength of the natural gas price rally over the past two weeks. Last week’s bullish engulfing line, April’s bullish hammer and morning star setup, and bullish daily divergences on the KasePO, KaseCD, MACD, RSI, and Stochastic are all technical evidence that the move down may finally be complete. However, many traders are skeptical of the move up and are asking what fundamental factors would support a recovery over the course of the longer-term. It is a fair and accurate question. Tomorrow’s U.S. Energy Information Administration (EIA) Natural Gas Weekly Update should provide a strong clue regarding the potential strength of a continued natural gas price rise.

In addition to the aforementioned bullish technical factors on the monthly, weekly, and daily charts, the short term technical factors and wave formations show evidence for a move to at least $2.93. This is a decision point because it is the 2.764 (XC – shown in red) projection for the wave up from $2.481, the 1.00 (E – shown in pink) from $2.557, and the 1.618 (L – shown in purple) from $2.747. In addition, $2.93 is the last level protecting mid-March’s $2.982 swing high. A sustained close over this would open the way for an extended move to targets above $3.00. However, $2.93 will not likely be tested until after tomorrow’s EIA report, if at all, because most traders are waiting for confirmation from another lower than expected build.

There is good reason to be suspicious of this move up, and a disappointing EIA report tomorrow could be the catalyst to turn prices lower again in very short order. Therefore, until there is a sustained close over $2.93 caution is warranted.

The daily chart has formed a hanging man and evening star setup as of this mid-day analysis, and a close below Monday’s $2.78 midpoint would complete the pattern. This would then open the way for $2.65, the 50 percent retracement of the move up and last week’s midpoint. A close below $2.65 would confirm the move up is over and most likely point toward the market settling into a trading range while it sorts itself out.

Request a trial of our weekly energy forecast on natural gas to learn more.

From day-to-day natural gas prices are oscillating back and forth on short term speculation and headlines. At one moment we read that the weather forecast is cooler than normal for the next few weeks and then a headline says the forecast is normal. In addition, rig counts are down, but the rate at which they are declining is leveling off. Storage levels are high, and government data shows that production is on pace to increase by five percent this year. The point is that it is hard to get a handle on the fundamental factors right now, and that is fairly typical for this time of year in the shoulder months between the break of the winter heating season and summer cooling demand. However, during this time the technical analysis factors can tell us a lot about how events may unfold, especially for the near term.

The natural gas forecast looks weak ahead of tomorrow’s U.S. Energy Information Administration (EIA) Natural Gas Weekly Update. Prices are falling again after last Thursday’s four percent gain ahead of the long weekend. Thursday’s move formed a daily bullish and engulfing line, weekly bullish piercing pattern, and confirmed a daily divergence on the KasePO. However, the inability to follow through this week, and the potential for a close below Thursday’s $2.657 midpoint today, does not bode well for an extended upward correction before new contract lows are made.

As it stands, the wave formation down from $2.949 calls for $2.49 once natural gas prices close below the $2.56 target. A close below $2.56 and decline to $2.49 and lower is the most likely scenario that will unfold, unless there is another bullish shock from this week’s EIA report.

Overall, most factors for the short term are negative. Momentum on the KasePO is declining, and a new swing low below $2.583 would negate the bullish divergence. The KaseCD is also declining, but is setup for a mini-divergence between the $2.633 and $2.613 swing lows, so caution is warranted. The KEES indicator is showing strong first class short permissions (magenta dots) on the 240-minute Kase Bar chart, and a short trade was triggered this morning when the red S formed.

A close below last Thursday’s $2.657 midpoint would certainly increase the odds of a decline to $2.56 tomorrow. However, a move back above this at the end of the day today would increase the uncertainty of a continued decline and could open the way for $2.72 to be challenged again. This is the key resistance level for the near term, and a move above this would call for an extended correction. This is a less likely scenario, but is not unlikely.

To conclude, the market knows what its support and resistance levels are and the near term direction will be decided by a close beyond these levels. A close below $2.56 will call for at least $2.49. Conversely, a move back above $2.657 would call for another test of major resistance at $2.72.

Learn more about Kase’s energy forecasting, trading indicators, and hedging solutions.

Natural gas had been supported by late winter weather in regions of the U.S. through late last week. However, as expected, natural gas prices finally broke lower out of the large scale corrective pattern that formed during the calendar month of March. The move down is poised to continue, but in the very short term, there may be a small pullback first.

The May futures contract broke out of another small bearish flag this morning on the 240-minute equivalent Kase Bar chart and fell to a new contract low of $2.583. This is an important area of support, and a potential short term stalling point because May’s $2.583 low is in line with the 1.00 target for the move down from $2.949 (as shown in the chart above), and is also near the continuation chart’s swing lows of $2.567 and $2.578. In addition, a bullish KasePO divergence (green trend line) was confirmed this morning.

All of these factors are positive for the very short term. They indicate that a pullback may take place ahead of tomorrow’s U.S. Energy Information Administration (EIA) Natural Gas Weekly Update. However, the longer-term technical and fundamental factors indicate resistance should hold and that the move down will extend. Once natural gas prices have definitively broken support between $2.57 and $2.60, look for $2.51 and $2.46, the latter of which is also the 0.618 projection of the compound wave $2.949 – 2.608 – 2.686.

Look for resistance at $2.65 to hold. This is the 21 percent retracement of the decline from $2.949 and is near the lower trend line of the small bearish flag that broke lower this morning. Even a pullback to $2.72, which is the 38 percent retracement, would be considered a normal correction. A close over $2.72 is doubtful without a bullish surprise from external factors.

Take a trial of Kase’s more in-depth weekly energy forecasts.

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.

Brent Crude Oil Approaches Crucial $52.8 Support

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