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Short positions were exited for a profit when price breached a channel. Now a deep bounce is underway exactly as expected.

Summary: The bounce looks incomplete. If price comes up to touch the pink base channel on the daily chart, then enter short there. Stops should be just above 52.00. Invest only 1-5% of equity on any one trade.

New updates to this analysis are in bold.

MONTHLY ELLIOTT WAVE COUNT

US Oil Elliott Wave Chart Monthly 2017
Click chart to enlarge.

Within the bear market, cycle wave b is seen as ending in May 2011. Thereafter, a five wave structure downwards for cycle wave c begins.

Primary wave 1 is a short impulse lasting five months. Primary wave 2 is a very deep 0.94 zigzag lasting 22 months. Primary wave 3 is a complete impulse with no Fibonacci ratio to primary wave 1. It lasted 30 months.

The main wave count this week is changed to see primary wave 4 complete. I have been concerned for some time about the expected large breach of the maroon best fit channel on the monthly chart that would be required for primary wave 4 to continue as an expanded flat. The upper edge of this channel is providing very strong resistance. While price remains below it, my conclusion is that it looks best if primary wave 4 is over.

There is alternation in depth with primary wave 2 very deep and primary wave 4 shallow. There is inadequate alternation in structure, both are of the zigzag family, but there is some alternation within structure. Primary wave 2 is a single zigzag and the triangle for intermediate wave (B) gives it a sideways look. Primary wave 4 is a sharper and quicker double zigzag.

If it continues as per the alternate, then primary wave 4 may not move into primary wave 1 price territory above 74.96.

This change to the wave count this week makes no difference to expected direction nor to short term targets. It makes a material difference though to the final target.

WEEKLY ELLIOTT WAVE COUNT

US Oil Elliott Wave Chart Daily 2017
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Primary wave 5 looks like it may beginning very typically with a series of overlapping first and second waves. The third wave within it looks to be extending. It should be expected that within one or more of these third waves that their fifth waves may be very strong and sharp, ending with selling climaxes typical of commodities.

If minuette wave (ii) is another very deep correction, then it should find final very strong resistance at the upper edge of the maroon channel which is copied over from the monthly chart.

Minuette wave (ii) may not move beyond the start of minuette wave (i) above 52.00.

DAILY ELLIOTT WAVE COUNT

US Oil Elliott Wave Chart Daily 2017
Click chart to enlarge.

Primary wave 5 must subdivide as a five wave motive structure, either an impulse or an ending diagonal. With the overlapping of first and second waves so far, it looks very much like the more common impulse may be unfolding.

My only concern today is labelling within minuette wave (ii). It may be that subminuette wave a is incomplete. Here, subminuette wave b looks to be remarkably brief.

Minuette wave (ii) looks to be still incomplete. Expect it to end at the 0.618 Fibonacci ratio, at minimum, or quite likely deeper than that. It may come up to find resistance and end at the upper edge of the pink base channel. If price does come up to touch that trend line, members are advised to enter short there, with a stop just above 52.00. Invest only 1-5% of equity on any one trade.

Members are advised to continue to exert patience over the next week or so while we wait for minuette wave (ii) to show us that it is over. Any update on a short entry will be posted in comments here on US Oil analysis.

ALTERNATE WEEKLY ELLIOTT WAVE COUNT

US Oil Elliott Wave Chart Daily 2017
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This wave count has been the main wave count up until this week. It is now relegated to a less likely alternate.

The whole structure of primary wave 4 is seen here in more detail.

The first wave labelled intermediate wave (A) is seen as a double zigzag, which is classified as a three.

Intermediate wave (B) is also a three. This means primary wave 4 is most likely unfolding as a flat correction if my analysis of intermediate wave (A) is correct. Flats are very common structures.

Intermediate wave (B) began with a zigzag downwards. This indicates it too is unfolding most likely as a flat correction.

Within intermediate wave (B), the zigzag upwards for minor wave B is a 1.29 correction of minor wave A. This indicates intermediate wave (B) may be unfolding as an expanded flat, the most common type.

The normal range for intermediate wave (B) within a flat correction for primary wave 4 is from 1 to 1.38 the length of intermediate wave (A) giving a range from 26.06 to 16.33.

Primary wave 4 may not move into primary wave 1 price territory above 74.96.

Within the larger expanded flat correction of primary wave 4, intermediate wave (B) must retrace a minimum 0.9 length of intermediate wave (A) at 28.61 or below.

DAILY ELLIOTT WAVE COUNT

US Oil Elliott Wave Chart Daily 2017
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Minor wave C downwards must subdivide as a five wave structure.

So far now there would be four overlapping first and second waves within this wave count.

When third waves extend, as this one is, they necessarily begin with a series of overlapping first and second waves. Third wave extensions are extended in both price and time, and they show lower degree corrections within them on higher time frames. This one so far looks like a normal start to a third wave.

TECHNICAL ANALYSIS

DAILY CHART

US Oil Chart Daily 2017
Click chart to enlarge. Chart courtesy of StockCharts.com.

A resistance line is changed this week to show possible resistance for this bounce.

So far price has been making a series of lower lows and lower highs since the high in February 2017. This is the definition of downwards movement. The corrections are extreme.

Although volume is declining as price rises that does not mean the bounce must end here. Price can continue to drift higher on light volume for another week or two.

A new resistance line is added this week to On Balance Volume. There is some distance to go before it is reached.

Stochastics can remain extreme for a reasonable period of time, even during a counter trend bounce. Just because Stochastics is now entering overbought does not mean the bounce must end here.

ADX, ATR and Bollinger Bands all agree that upwards movement for price looks like a counter trend bounce.

VOLATILITY INDEX

OVX Chart Daily 2017
Click chart to enlarge. Chart courtesy of StockCharts.com.

Normally, volatility should decline as price rises and volatility should increase as price falls. Divergence from this normal can provide a bullish or bearish signal for Oil. However, it is noted that this signal occurs both in minor and major lows and it cannot be used to distinguish between them.

At this time, volatility and price do not have a negative correlation. Volatility cannot be used at this time to signal if a low is in place or not.

This analysis is published @ 07:32 p.m. EST.