Brent crude (QA) remains in a major (long-term) uptrend with the continued selloff during December still looking to be Wave 2 of the 5-wave pattern. The spot-month contract posted a December low of $72.30, an 86% retracement of Wave 1 from the May 2023 low of $68.20 through the September high of $97.67. A deep retracement is characteristic of Wave 2, with the key now being a hold above the May 2023 low. Additionally, based on the Benjamin Franklin Fish Analogy* the 3-mont Wave 2 selloff could lead to renewed buying during January. This would also be viewed as seasonal activity as crude oil tends to rally through late June. Theoretical Positions: Previous short futures were covered and new longs established as the spot-month contract took out the previous 4-month high of $87.49 during August. This has longs at roughly $87.50. Additional longs could be established when Wave 2 looks to be bottoming, possibly near $74.50. If new longs were added during December, the average position would be near $81.00, with sell stops below the May 2023 low of $68.20.
WTI crude oil (CL) is in a major (long-term) uptrend. Similar to Brent, WTI remained in a Wave 2 selloff during December hitting a low of $67.71 before closing at $73.44. The low was an 87% retracement of Wave 1, as well as a 3-month move against the trend. Theoretical Positions: Long positions were established on the move above the previous 4-month high of $83.53 (April 2023). Additional longs could be established when Wave 2 looks to be bottoming, possibly near $70.30. If so, the average long position would be approximately $76.90. Others might’ve waited for the Wave 2 retracement to go long. Either way, stops would be below the May 2023 low of $63.57.
Distillates (HO, heating oil, diesel fuel, jet fuel, etc.) remain in a major 5-wave uptrend with the continued selloff durning December still looking like a Wave 2 move. The December low of $2.4838 was a 75% retracement of Wave 1 from $2.15 (May 2023) through the high of $3.5092 (September 2023). This was also a 3-month move, meaning distillates could find renewed buying interest during January. Seasonally the market tends to rally through late April. Theoretical Positions: Traders could be long just above the previous 4-month high of $2.9198. Additionally, those needing to cover diesel needs could wait for the Wave 2 selloff to bottom. The latter group could target between the December close ($2.5531) and roughly $2.44.
RBOB gasoline (RB) looks to be in a sideways trend. However, the spot-month contract posted a new major low of $1.9672 before rallying to close the month at $2.1026. Theoretical Positions: None at this time.
Natural gas (NG): The Widow Maker remains anyone’s guess. The spot-month contract fell to a low of $2.235 during December on follow-through selling from November’s completion of a bearish 2-month reversal. However, the market remains oversold, according to monthly stochastics, with the April 2023 low of $1.946 continuing to hold. Theoretical Positions: It’s possible traders established long futures positions near the April close of $2.41. Additional longs might have been established during August with the move to a new 4-month high beyond $2.878. It’s also possible those long were sold at the end of November with the spot-month contract price at $2.802 for an average profit of roughly $0.158.
*Like guests and fish, markets tend to stink after three days/weeks/months (whatever time frame is being studied) of moving against the trend.
