Side Note: For the record, I’m in agreement with Warren Buffett’s thoughts on technical analysis, at least in the Energies sector. Buffett has said on the subject, “I realized that technical analysis didn’t work when I turned the chart upside down and didn’t get a different answer.” To emphasize this point, the market making the most sense, from a technical point of view, is Natural Gas (aka the Widow Maker). That tells us all we need to know.
Brent crude (QA) moved back into a major (long-term) downtrend during April as it fell to a low of $58.39, its lowest price since February 2021. Theoretical Positions: If long-term investors went long near the March close of $74.74, then sell stops below the March low of $68.34 would’ve been hit, resulting in a loss of $6.40 (0.9%).
WTI crude oil (CL) moved back into a major downtrend as it fell to a low of $55.12 during April, its lowest price since February 2021. Theoretical Positions: Long-term investors are likely on the sidelines for now given the WTI forward curve remains in backwardation.
Distillates (HO, heating oil, diesel fuel, jet fuel, etc.): The market extended its major downtrend to a low of $1.9338 before closing at $2.0172, up 1.54 cents for the month. Theoretical Positions: If traders bought on the bullish breakout above $2.4183, sell stops below the previous low of $2.0431 would’ve been triggered during April creating a loss of 37.52 cents (15.5%).
RBOB gasoline (RB): The market remains in a major sideways trend. Theoretical Positions: Traders might’ve bought on the new 4-month high near $2.1753 during February. If so, sell stops below the previous 4-month low of $1.8949 would’ve been triggered creating a loss of 28.0 cents (12.9%). Investors would be on the sidelines at the end of May.
Natural gas (NG) remains in a major uptrend. The selloff during April and consolidation during May looks to be Wave 4 of a 5-wave pattern. Theoretical Positions: Traders might’ve gone long on the bullish breakout above $2.168 during May 2024. Additional long positions may have been established above the May high of $2.924 during June. Additional longs may have been added near the August close of $2.127 based on the spot-month contract completing a bullish spike reversal, indicating a Wave 2 low. Another set of long positions might’ve been added during February as the spot-month contract took auto the January high of $4.369. If so, then the average long position would be roughly $2.897.
The Bottom Line: I do not like the Energies sector at this time.
