Where Ethylene and Naphtha Prices are Heading to? – July 29th, 2020
After almost 6 months of pandemic, energy and petrochemical markets recovered prices from their bottom. Ethylene bounced 100% and Naphtha recovered almost 200% since April 2020; but both petrochemicals are still struggling to overcome their last February price level.
Both downstream petrochemicals prices are now steady into some resistance areas, so we will analyze what technical analysis is telling us, and where prices would be heading to.
Let’s take a look at both daily charts.
ETHYLENE MBEc1 Future Contract. Daily Chart provided by MetaStock; Alerts provided by e-globalTrading
Observing the corresponding daily chart, we note that ethylene prices sank after the first e-global SHORT/SELL alert happened, which was showed up on January 27th. About 14 days later, the second SHORT/SELL alert was triggered, also showing upper dots highlighted signals to issue the official # 1 SELL call, which was an anticipated down move announce.
MBEc1 prices fell approximately 50% from 16 cts/lb to 0.08 cts/lb, forming an historic low price for ethylene during the first week of April. Also note the April 13th color ribbon change, from red to yellow at the lower part of the chart, announcing the possible end of the corresponding down move.
After ethylene prices crossed over the blue 20 EMA line, we were just waiting for the first bullish alert (Green lower dots), which finally happened on May 8th. The referred bullish alert announced the strong bounce to remove the strong remaining supply, which was coming from the overhead 200 EMA (Red line) - 450 EMA (Violet line) supply area.
The NAPHTHA UNc1 daily chart is also showing more or less the same technical picture; prices strongly bouncing from the bottom formed during the month of April. Note that naphtha prices are up-trending, cleaner than ethylene, and practically, showing no pullbacks. Anyway, both petrochemicals, ethylene and naphtha, are very well aligned and synchronized, which is a good signal for a possible price up-continuation.
NAPHTHA UNc1 Future Contract. Daily Chart provided by MetaStock. Alerts provided by e-globalTrading
However, ethylene and naphtha prices are both facing strong resistance into the 450 EMA (violet line); but at the same time, both are right above the 200 EMA (Red line)-20 EMA (Blue line) support area.
Both petrochemical prices are currently showing sideways trading, preparing for a possible 450 EMA crossover (Violet line). So, the big question is what to watch to learn how well both petrochemicals are preparing the referred EMA 450 cross-over.
e-globalTrading has a couple of proprietary indicators, both very suitable as helping tools, to foresee the crossover possible outcome.
Convergence indicator looks fine and similar for both petrochemicals. A Flat plot into the neutral 0 level is what we want to see for a solid continuation, up-continuation in this case.
SMOM indicator plots are both fine. Both plots, yellow and green line, are above the neutral 0 level for both petrochemicals, but UNc1 looks a little tired, a bit exhausted, showing the green line flat and overbought. The corresponding UNc1 yellow line already crossed-down the green line, while the corresponding MBEc1 yellow line is apparently successfully re-testing the long-term green line and showing room enough to continue up, right into the 450 EMA. However, we must remember that the 450 EMA is strong and powerful as a resistance, so nothing is granted for the referred ethylene 450 EMA crossover. However, as we noted before, we see MBEc1 slightly better to continue up.
Crossing the 450 EMA area is not that simple. Normally, it requires some time and mainly takes a lot of commitment from players who are in control (buyers in this case). At the same time, we are not sure if key bull players are really convinced to be LONG over the 450 EMA area. We possibly need to confirm energy global demand first.
Finally, from the fundamentals point of view, the US Dollar have shown weakness. DXc1 Dollar Index future contract did a break-down move from the 97 area to the 93 area, with the obvious bullish implications for energy commodities
Dollar Index DXc1 Future Contract. Daily Chart provided by MetaStock; Alerts provided by e-globalTrading
Note the precision shown by the e-globalTrading SMART SHORT/SELL Alert, which was triggered last July 14th, just before the strong down move began.
e-globalTrading - July 29th, 2020
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