- Some of the more reliable technical reversal patterns I look for are new 4-month highs (bullish) and 4-month lows (bearish).
- In the energy complex RBOB gasoline posted a new 4-month high during April, followed by distillates during July, with crude oil and natural gas following suit in early August.
- What makes the sector even more bullish is futures forward curves for all but natural gas are showing strong backwardation (inverses).
The energy sector continues to grow more bullish, with Wednesday’s spotlight on both crude oil markets (Brent and WTI) and natural gas (the famed Widow Maker) as these markets posted new 4-month highs over the course of the session. What is significant about a new 4-month high? Going back to the textbook I used to teach myself technical analysis[i], there is a section on the four-week rule (pg. 268). Quoting from the book, “The system based on the four-week rule is simplicity itself: 1. Cover short positions and buy long whenever the price exceeds the high of the four preceding calendar weeks. 2. Cover long positions and sell short whenever the price falls below the lows in the four preceding full calendar weeks.” When I apply my Goldilocks Principle[ii], usually for theoretical hedge positions (long or short), I stick with the four-week rule. However, when I’m looking at long-term trends of markets (investments, white papers, outlooks, etc.) I modify the rule to four months. Given the five major energy markets have all posted new 4-month highs since this past April, investors could be ready to jump into the sector with both feet. But there’s more than bullish technical patterns to guide them. There are also fundamentals.
