(RB) Peak/Reversal Factors Mount in RBOB

Technicals, April 9, 2012; 6:50am

While last Wed's confirmed bearish divergence in momentum below 3.3659 detailed in the 240-min chart below is of a short-term scale insufficient to conclude the end of the past 4-1/2-month advance, a number of factors are lining up to warn of a peak/reversal threat that could be major in scope, including:

• historically gross bullish sentiment
• waning upside momentum that has spanned weeks
• the market's proximity to May'11's major 3.4155 peak.

The stochastics measure of momentum shown in the daily log chart below clearly indicates upside momentum that has arguably been waning since late-Feb. But by virtue of 03-Apr's run to yet another new high for the major bull, the market has defined 02-Apr's 3.2776 low as the corrective low and risk parameter this market is required to break to confirm the bearish divergence in momentum needed to break the major but simple uptrend pattern of higher highs and higher lows. While that 3.2776 low remains intact, so does the major uptrend.

The weekly log chart below shows our proprietary MRT Bullish Sentiment Index of hot Managed Money positions reportable to the CFTC. At a whopping 99% reading reflecting 89.5K longs to just 1K shorts, this sentiment indicator is at its highest and most vulnerable level since the early-2006 inception of this congregation of CFTC data and higher than that that accompanied 2011's major peak and reversal. If the market confirms a bearish divergence in momentum below 3.2776, this sentiment indicator will become an applicable technical tool that we believe would warn of potentially major, capitulating downside vulnerability, especially stemming from the extreme upper boundary of the past year's range.

Actually, the market posted a minor new (3.4278) high above May'11's key 3.4155 high but has thus far failed to sustain those gains and almost posting an "outside week." But we believe a failure below 3.2776 will decide the issue and reject/define a more reliable high, resistance and risk parameter from which all non-bullish decisions like long-covers and cautious bearish punts can then be objectively based.

In sum, we believe this market is only a confirmed bearish divergence in momentum below 3.2776 away from exposing a peak/reversal threat that could be major in scope. Strength above last week's 3.4278 is required to mitigate this threat. Cautious bearish punts via option strategies are advised prior to a sub-3.2776 failure.

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