Last week again expected downwards movement from Oil.
Oil made a new low, and so far has made a lower high.
Summary: There is only one wave count today which expects a fifth wave is extending. The first target is 14.02. The second target is 11.98. Corrections are finding resistance at one of two trend lines which provides a good guide for entry points to join the trend. Risk with the wave count is limited to 33.60.
New updates to this analysis are in bold.
MONTHLY ELLIOTT WAVE COUNT
US Oil has been in a bear market since August 2013. While price remains below the upper edge of the maroon channel drawn here and below the 200 day simple moving average it must be accepted that the bear market most likely remains intact.
The structure of cycle wave c is incomplete.
This wave count sees US Oil as within a big super cycle wave (II) zigzag. Cycle wave c has moved below cycle wave a at 32.70 avoiding a truncation. At this stage, as soon as the structure for cycle c could be seen as complete an alternate wave count expecting an end to the Oil bear market would be published. That cannot be done yet because the structure is incomplete. Primary wave 5 has to unfold lower.
When the structure is complete and an alternate bull wave count is published, then it would come with the strong caveat that it is an alternate until there is technical confirmation of a trend change. That confirmation would be a breach of the maroon channel or a break above the 200 day moving average, or both.
Within cycle wave c, primary wave 5 is expected to be extended which is common for commodities.
No second wave correction may move beyond the start of its first wave above 50.93 within intermediate wave (3).
Draw a channel about this unfolding impulse downwards. Draw the first trend line from the lows labelled primary waves 1 to 3, then place a parallel copy up not the high labelled intermediate wave (2), so that all movement is contained. Add a mid line. Copy the channel over to the daily chart.
The wider teal green channel is drawn about this whole correction. Cycle wave c may end when price finds support at the lower edge of this channel. But sometimes these channels are breached by C waves, particularly if the C wave has a swift strong extended fifth wave to end it. How price behaves when it gets to the lower teal trend line, and how complete the structure is at that stage, will indicate if price may stop there or if it would continue.
MAIN DAILY ELLIOTT WAVE COUNT
The two daily alternate wave counts from last week no longer make sense. Minor wave 4 is extremely likely to be over and does not look like it is continuing as a triangle. This main wave count is now the only wave count at the daily chart level for Oil.
Within intermediate wave (3), minor wave 3 shows an increase in downwards momentum beyond that seen for minor wave 1. But intermediate wave (3) has not yet seen an increase in momentum beyond that seen for intermediate wave (1). A further increase in downwards momentum should be expected.
Minor wave 2 was a deep expanded flat which lasted a Fibonacci 13 days. Alternation between minor waves 2 and 4 should be expected. If minor wave 4 is over now, then it would be a shallow zigzag lasting 7 days, one short of a Fibonacci 8. This gives the wave count the right look and provides perfect alternation in both structure and depth.
Within minor wave 4, minute wave c is just 0.38 longer than equality in length with minute wave a.
Minor wave 4 has slightly overshot the channel which is drawn using Elliott’s first technique. This is another indicator that it is likely to be over.
Create a parallel copy of the upper edge of the dark blue Elliott channel and place it on the high of minor wave 4. This trend line is providing resistance.
Typical of commodities, US Oil often will exhibit very swift strong fifth waves. That means that the strongest part of downwards movement may be ahead, and this tendency is particularly strong for fifth waves to end third waves.
At 14.02 minor wave 5 would reach equality in length with minor wave 3. At 11.98 intermediate wave (3) would reach 1.618 the length of intermediate wave (1). The next target is now at 14.02. If that target is met and passed, then the next target would be 11.98.
Minor wave 1 lasted 4 days (not a Fibonacci number). Minor wave 3 lasted exactly a Fibonacci 55 days. Minor wave 5 may last a total Fibonacci 55 days. (Note: I am counting only trading days and not calendar days).
When waves extend in price they also necessarily extend in time. When waves extend they show their smaller subdivisions clearly at higher time frames. Within minor wave 5, minute wave ii is clear, again finding resistance at the upper parallel copy of the Elliott channel.
Now, within minute wave iii, another deep correction for minuette wave (ii) shows up clearly. This indicates that minute wave iii is extending. Minuette wave (ii) may find resistance here at the first dark blue line, or it may yet move a little higher to find resistance at the next dark blue line. It may not move beyond the start of minuette wave (i) above 33.60.
When fifth waves of commodities extend, then within them the middle, the third wave, is most often the longest and strongest movement. So far this wave count follows the most typical tendencies for a commodity. It has a good probability.
Click chart to enlarge. Chart courtesy of StockCharts.com.
Upwards movement comes with declining volume. The rise in price is not supported by volume. This upwards movement should be considered as very likely to be a correction against the trend. FXCM data for volume for the 12th and 15th of February (not available on StockCharts) shows two more upwards days on strongly declining volume.
The prior fall in price came on clearly increasing volume. The volume profile is clearly bearish. This supports the Elliott wave count.
This upwards movement should be expected to end here or very soon.
ADX is no longer indicating a downwards trend. The last two corrections which have been deep have caused the ADX line to turn downwards. It is now flat. ADX is a lagging indicator.
ATR is also flat indicating no trend.
On Balance Volume broke below the light blue line and came up to test it. When data for 15th February is included, then this line is probably breached. The next line to offer resistance for OBV may be the yellow line.
RSI exhibits some divergence with price at the last low and the low of 20th January. This indicates some weakness in price and is bullish. However, in my experience this divergence sometimes does not precede a trend change but sometimes disappears and the trend continues.
Overall, the volume profile is a stronger bearish indicator than other technical indicators. Overall, this analysis is more bearish than bullish, but there is enough bullishness in it to warrant caution. Any short positions here should be carefully managed to limit risk.
This analysis is published @ 07:19 p.m. EST.