Corey at Afraid to Trade reviews the daily and monthly charts for crude oil. It looks like peak oil has turned upside down — in Elliott Wave language, upon the completion of the a 5th wave up on the monthly chart, the first leg down, wave A, found support in the area of the previous 4th wave, actually a bit lower.
A Short and Long Term Look at Crude Oil
Courtesy of Corey Rosenbloom, at Afraid to Trade
A couple of readers have asked me to take a look at current Crude Oil structure and what might be ahead. Let’s do so both on the daily chart, and then see a full Elliott Wave Count with an interesting twist on the Monthly Chart.
Crude Oil ($WTIC) Daily:
Probably the first thing that jumps off the chart is the strength and relentlessness of the current downtrend – price has barely made any meaningful counter-retracement at all.
We’re currently in a counter-trend retracement which could be of great interest, particularly if buyers can continue to push price higher. Price has finally broken above resistance via the falling 20 day EMA, and it will be critical for buyers to hold this level (around $45) and push for a test of the falling 50 day EMA around $55 to see what sort of strength remains in the short-term. Breaking above $55 would have crucial short and long term significance as it would likely trigger an official trend reversal on the daily chart.
The second thing that should leap off the chart at you is the multi-swing positive momentum divergence that has been in place since mid-October. This is hinting that the ‘price rubber band’ is being stretched and will snap back perhaps forcefully when the buyers step back in. Or it could be interpreted as the sellers are losing strength – though they continue to push price to new lows, they do so with less ‘conviction’ each time, meaning they may be using all their ‘fuel.’
Continue to watch the $45 to $55 level very closely and let’s see when this divergence will work itself off (to the upside). Now let’s pull back to the Monthly Chart for perspective.
Crude Oil ($WTIC) Monthly:
The striking thing about this chart is that we have a full 5-wave confirmed Elliott Wave impulse beginning with the 1999 bottom (crude ‘flatlined’ prior to that). We see an exemplary 5-wave structure that could have been used as an ideal or textbook example for a course describing the Elliott Wave Principle.
If the above count is correct, then odds are we have just completed the “A” massive corrective wave and are now embarking on a possible “B” up wave which could – in theory – take us to the $70 level, but let’s not get too far ahead of ourselves.
Pause a moment and reflect on the absolute price damage that was done in the recent sell-off from $140 to $40 during six months of relentless selling – that is highly abnormal and perhaps is an example of Nassim Taleb’s Black Swan (I highly recommend reading this book if you have not done so already) once-in-a-lifetime price declines that confounded statisticians and risk-managers (many hedge fund strategies ‘bet’ on reversion to the mean, so they continued to buy aggressively as price continued its brutal slide, wiping out some firms).
Ultimately, price found support – so far – at the rising 200 month SMA which was quite remarkable that a reversal occurred right at that price level. We would expect $35 to be very strong support and would expect higher prices based on this structure, and though it would be surprising if Crude breaks the $35 level, it certainly would not be out of the realm of possibilities.
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Continue to study these charts for additional insights on possibilities ahead for the future.
Corey Rosenbloom
Afraid to Trade.com
