Last week’s analysis expected to see 8 sessions of overall upwards movement to a target at 31.47 or 34.16.
Price moved higher for 7 sessions to reach 34.82.
Summary: The correction for minor wave 4 is very likely to be over. This would be confirmed with a clear breach of the small channel that contains it. The target for the next wave down is 26.87 – 26.1. If this target is wrong, it may not be low enough.
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.
DAILY ELLIOTT WAVE COUNT
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.
Draw a channel about the zigzag of minor wave 4 (pink lines). When this channel is clearly breached by a full daily candlestick below and not touching the lower edge, that shall provide trend channel confirmation that minor wave 4 is very likely to be over. When that channel is breached price may throwback to the lower line. If price behaves like that, then it may offer a perfect entry at a good price with low risk.
When the channel is breached, then the invalidation point may be moved down to the end of minor wave 4. For now the risk will remain that minor wave 4 may not be over and may continue higher. It may not move into minor wave 1 price territory above 45.24.
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. My targets may be too high; minor wave 5 to end intermediate wave (3) may be a strong extension.
At 26.87 minor wave 5 would reach 0.382 the length of minor wave 3. At 26.1 intermediate wave (3) would reach equality in length with intermediate wave (1). This gives a 0.77 target zone calculated at two wave degrees. If this target is wrong, it may not be too high. For this reason I also provide lower calculated targets.
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). If the first target zone of 26.87 – 26.1 is met and passed, then the next target would be 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. If the first target zone is met, then minor wave 5 may last a Fibonacci 21 days. If the lower targets are met, then minor wave 5 may last a total Fibonacci 55 days. (Note: I am counting only trading days and not calendar days).
Click chart to enlarge. Chart courtesy of StockCharts.com.
As price rose to the last high, it came on increasing volume. This does not look corrective but looks impulsive. For this reason it is essential that confirmation of a change by a channel breach is used before any confidence may be had that the correction is over.
The gold trend line along the lower edge of this correction must be clearly breached by a full daily candlestick before any confidence may be had that this upwards movement is over. This line is the same as the lower edge of the pink channel on the daily Elliott wave count.
RSI has not reached an extreme. It is neutral and shows no divergence with price.
ADX is declining from an extreme. This indicates the market is not trending. Importantly, the -DX line remains above the +DX line, so ADX has not indicated a trend change.
On Balance Volume often leads the way with trend lines. It has found resistance at the upper blue line and moved lower from there. The strength of that line is reinforced. The short term green line is added this week. If OBV breaks below that line, it shall provide some confidence in the Elliott wave count.
Stochastics has reached overbought and is returning. This supports the idea of at least some downward movement for a downwards swing to continue until price finds support and Stochastics reaches oversold.
This analysis is published @ 12:49 a.m. EST on 2nd February, 2016.