Last week expected downwards movement from Oil.
Price came back up to touch the trend line and then has overall moved lower.
Summary: A fifth wave may be extending, and it may be strong as is typical for commodities. If targets are wrong, they may not be low enough. The target remains the same so far at 26.87 – 26.1. In the short term, confidence may be had in strong downwards movement with a new low below 29.40. A new high above 33.60 would see the second alternate wave count confirmed.
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
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 currently 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. 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 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).
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. This indicates minor wave 5 may be extending, so the lower targets must be considered seriously.
Within minute wave iii,, no second wave correction may move beyond the start of its first wave above 33.60.
ALTERNATE DAILY ELLIOTT WAVE COUNT
At first glance it looks like minor wave 4 may be continuing sideways as a triangle. However, when this idea is charted it does not have the right look. Minute waves b and d within this possible triangle look to be too brief and shallow.
This movement has a more typical look of a series of first and second waves as per the main daily chart.
If a triangle is unfolding, then within it minute wave e may not move above the end of minute wave c at 33.60.
Fifth waves to follow triangles are often surprisingly short. For this idea the target at 26.1 looks reasonable.
It is my judgement, based upon experience, that this alternate wave count has a low probability. But low probability does not mean no probability. It is a possibility that should be considered. At this stage, it makes no difference to the expected direction or invalidation point.
SECOND ALTERNATE DAILY ELLIOTT WAVE COUNT
This alternate wave count has the lowest probability today. But all possibilities should be considered.
What if there is a triangle forming and it is a B wave within a fourth wave correction?
There would still be structural alternation between minor waves 2 and 4. There would also be alternation in depth if minor wave 4 ended at the 0.382 Fibonacci ratio at 34.16.
Minor wave 4 would breach the Elliott channel and also break through resistance at the upper parallel copy. Sometimes fourth waves are not contained within channels.
Minor wave 2 lasted 13 days. So far minor wave 4 has lasted 13 days. It would still have good proportion if it continued for a very few more days.
Minute wave c would be highly likely to move at least slightly above minute wave a at 32.74 to avoid a truncation.
If price breaks above 33.60, then this wave count would be confirmed and, would be the only wave count. If that happens, then expect only a little more upwards movement to end about 34.16.
Of the two ideas including triangles for recent movement, it is my judgement that this idea has a better look. I judge this wave count to have a lower probability though due to the breach of resistance required for minor wave 4 to complete.
This wave count should only be used if it is confirmed with a new high above 33.60.
In the short term, a new low below 29.40 would invalidate the triangle for minute wave b because minuette wave (e) may not move below the end of minuette wave (c).
Minor wave 4 may not move into minor wave 1 price territory above 45.24.
Click chart to enlarge. Chart courtesy of StockCharts.com.
ADX and ATR indicate the market is not trending. The market is consolidating. Price is swinging from resistance to support and back again, bound between about 34.80 and 29.30. It is two upwards days which have strongest volume during this consolidation. This indicates an upwards breakout is more likely than downwards. However, although this trick works well for Gold it does not work so well for Oil.
The consolidation which lasted from 6th May, 2015, to 1st July, 2015, had three strongest upwards days yet price broke out downwards.
The consolidation which lasted from about 1st September, 2015, to 11th November, 2015, had a strongest day which was upwards yet price broke out downwards.
For the last three days as price has fallen volume has declined. The fall in price was not supported by volume. However, this is only a small cause for concern as price can fall of its own weight. It does not require an increase in sellers to push price lower, an absence of buyers will do it on light volume.
At this stage, the most reliable volume indicator for Oil may be On Balance Volume. The upper light blue trend line is now tested five times, so it has reasonable technical significance. While OBV remains below that line the main daily Elliott wave count should be favoured. A break below the lower light blue line would be a strong bearish indicator from OBV.
A range bound trading approach to this market would expect more downwards movement from here to continue until price finds support at the next horizontal red line and Stochastics is oversold at the same time.
This analysis is published @ 08:37 p.m. EST.