Natural Gas: Naughty or nice?

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WTI and Brent Crude Oil, Diesel, and Gasoline: Naughty or nice?

This week, I am doing my best impression of Santa Claus by reviewing various energy, metals, and perhaps a few equity charts to decide if they will be put on the naughty or nice list. I am sure that Jolly Old Saint Nicholas has his elves put all children on the nice list, at least initially. Therefore, we will do the same for the markets we review. However, should those markets display some bar behavior, then we will all know when to move them to the naughty list as their trends weaken or change.

WTI Crude Oil

January WTI crude oil has been working its way lower within the boundaries of a descending broadening wedge since rising to $61.84 in late October. The upper trendline of the wedge was tested and held on December 5, and the subsequent decline took out a couple of important wave projections and retracement levels within the past few days. It is doubtful that the wedge will break higher because prices have retraced around 89 percent of the rise from the $55.99 swing low.

Furthermore, closing below the smaller than (0.618) target of the primary wave down from $61.84 (royal blue) on Friday indicates that WTI should continue to work its way lower to challenge the $55.9 equal to (1.00) target in its ‘nice’ scenario. Support at $56.6 held today, but a close below this will call for a key bearish decision point at $55.9 to be challenged. This is the most confluent target on the chart and connects to the next major targets at $54.5, $53.0, and eventually the $52.5 intermediate (1.382) target of the primary wave down from $71.38 (green).

That said, trading has been choppy in recent weeks, thus the formation of the broadening wedge. Therefore, trading could remain choppy as WTI is sitting just above key objectives at $56.6 and $55.9. The $56.6 objective is the equal to target of the primary wave down from $71.38. This target held on a closing basis in mid-October and could prove to be a stalling point again. Should WTI rise and close above $57.5, look for a test of $58.6. This is the 38 percent retracement from $61.84 (orange) and the 20-day moving average. A simple correction will hold $58.6. Settling above this would call for a test of the ‘naughty list’ threshold at $59.9. This is the 62 percent retracement from $61.84 and the smaller than target of the wave up from $55.99 (purple). A sustained close above $59.9 would put WTI on the ‘naughty list’, opening the way for a test of this wave’s equal to target around $62.0.

Brent Crude Oil

February Brent’s decline from $65.25 has been erratic, but prices have continued to work their way lower. Brent may have formed a broadening wedge like WTI, but the pattern is not as clean because the lower trendline was broken on an intraday basis, and the most recent move up to $64.09 failed to test the upper trendline. The decline from $64.09 took out the $60.96 swing low and challenged a confluent target at $60.7 on Friday, which was taken out on Monday. A close below the smaller than target of the new primary wave down from $65.25 late last week also indicates that Brent should test this wave’s $60.0 equal to target. This is the most confluent and important target on the chart. Settling below $60.0 will take out the equal to target of the primary wave down from $74.23 (green), the intermediate target of the wave down from $70.33 (dark cyan), the smaller than target of the wave down from $68.86 (light blue), and various projections of the waves and subwaves down from $65.25. This will keep Brent on the ‘nice list’ and clear the way for a new low of at least $58.4, which then connects to $57.2 and lower.

Nevertheless, Brent may act up a little before testing and closing below $60.0. This is because the $60.2 equal to target of the primary wave down from $74.23 (green) was tested and held on a closing basis again on Monday. This is still a potential stalling point, and a close above $61.3 would call for a test of $62.1. A simple correction will hold $62.1 because this is the 38 percent retracement of the decline from $65.25 (orange). Settling above $62.1 would call for a test of the ‘naughty list’ threshold at $63.4. This is the 62 percent retracement and the smaller than target of the wave up from $59.93 (purple). Settling above $63.4 would call for Brent to challenge this wave’s $65.5 equal to target in the coming week.

NY Harbor ULSD (Diesel)

Diesel’s rise from the $2.2693 swing low had confirmed daily bullish long-legged doji candlestick reversal patterns. However, the rise proved to be a short-lived correction. Diesel fell during the past week and settled marginally below a crucial $2.200 target on Friday. This was the lowest that the first wave down from $2.6390 (not shown) projected and the 62 percent retracement of the rise from $1.9298 (dark blue). Diesel is now poised to test the $2.151 smaller than target of the primary wave down from $2.6390 (green). A sustained close below $2.151 will confirm that diesel will continue to be ‘nice’, opening the way for an eventual test of this wave’s $2.009 equal to target.

The daily Stochastic is oversold, but there are no bullish patterns or confirmed signals that call for diesel’s move down to stall. Even so, $2.151 is a key objective and a potential stalling point. Any move up will likely be a correction. However, should prices rise and close above $2.229, look for a test of $2.265. Key resistance, and the ‘naughty list’ threshold, is the 38 percent retracement of the decline from $2.3690 (magenta) at $2.347.

RBOB Gasoline (Diesel)

The outlook for gasoline is bearish after settling the week below the smaller than target of the largest wave down from $1.9517 (royal blue). This wave now calls for a test of its $1.709 equal to target. This will drive prices below the $1.729 XC (2.764) projection of the first wave down from $1.9517 (light blue), which held on a closing basis Monday, and the equal to target of the wave down from $1.9555 (light green). Settling below $1.709 might initially be a challenge because this is also the 78 percent retracement of the rise from $1.6109 (dark blue). An eventual close below $1.709 will keep gasoline on the ‘nice list’ and call an eventual test of the $1.643 equal to target of the primary wave down from $2.0214 (green).

There are no bearish patterns or signals that call for gasoline to stall. Even so, the daily Stochastic is oversold, and the daily RSI is quickly nearing oversold territory. Therefore, a correction might occur once $1.709 is met. A move up before closing below $1.709 will likely be a correction and should hold $1.781, which is the 38 percent retracement of the decline from $1.8755 (not shown). Key resistance and the ‘naughty list’ barrier for gasoline is the 38 percent retracement from $1.9517 (orange) at $1.810.