(HO) New S-T Risk Parameters Left in Wakes of New Diesel, RBOB Highs

Technicals
July 13, 2012; 8:25am

This morning's break above 05-Jul's 2.7899 Aug heating oil high reinstates the recovery from 25-Jun's 2.5084 high and exposes further and possibly accelerated gains. Especially given arguably waning upside momentum on a daily basis however as well as the prospect that this latest spate of strength might be a sequence-completing 5^th-Wave rally, the very important by-product of today's strength is the market's definition of yesterday's 2.7085 low as the latest corrective low and tightest risk parameter this market is now minimally required to fail below to confirm a bearish divergence needed to stem this clear and present rally and expose a larger-degree correction lower or quite possibly a resumption of Feb-Jun's major bear.

Today's strength remains consistent with a broader base/reversal threat first discussed in 29-Jun's Technical Webcast following that day's bullish divergence in momentum on the heels of a complete 5-wave Elliott Wave decline amidst historically pessimistic sentiment levels. But while the potential for a larger-degree correction or reversal higher will remain intact as long as the market sustains levels above 25-Jun's pivotal 2.5084 low, waning upside momentum and the market's proximity to the (2.7903) 38.2% retrace of Feb-Jun's 3.3151 - 2.5084 decline warrants keen watch for even a short-term mo failure below a level like 2.7085 that would certainly defer and potentially kill a broader bullish count. Indeed, while the market has thus far done a poor job of sustaining weakness below last Oct's key 2.6975 low and support, the weekly log chart below shows that this market still remains below a preponderance of the past 15 months' price action that may now weigh on it as new resistance.

These issues considered, a cautious bullish policy is advised with weakness below 2.7085 required to negate this view and warrant moving to a neutral-to-cautiously-bearish position ahead of what we'd then believe is at least a correction to the rally from 2.5084. In lieu of such sub-2.7085 weakness, further and possibly accelerated gains should not surprise.

The technical condition of the RBOB is identical to that detailed above for diesel, with weakness below yesterday's 2.7414 corrective low and short-term risk parameter required to negate a bullish count and expose at least a steeper correction to the rally from 21-Jun's 2.4408 low. In lieu of such sub-2.7414 weakness, the trend is up and should not surprise by its continuance or acceleration.