Last week’s main Elliott wave count expected upwards movement to end soon and be followed by some downwards movement. This is what has happened so far.
Summary: The alternate wave count is invalidated. Only one wave count is left. The target for downwards movement is now a range from 31.85 to 31.21. It is highly likely that downwards movement will at least make a new low below 35.25.
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. Price has turned back down from the 200 day moving average and back into the maroon channel.
The structure of primary wave 5 may be complete. This wave count has a problem though: primary wave 5 looks like a three wave structure at the monthly chart level. It may only subdivide as a five.
If primary wave 5 is complete, then the zigzag of Super Cycle wave (II) would also be complete. Super Cycle wave (III) must move above the end of Super Cycle wave (I) at 146.76. Within Super Cycle wave (III), no second wave correction may move beyond the start of its first wave below 26.06.
DAILY ELLIOTT WAVE COUNT
This wave count is identical to the alternate below up to the high labelled intermediate wave (2).
The maroon channel is slightly redrawn. Draw the first trend line from the end of primary waves 2 to the first swing high after primary wave 4 at 61.57, on 24th June, 2015. This upper trend line may show where price is currently finding support. When price breaks below this line, it may then throwback to find resistance. If that happens, it may offer a good opportunity to join the short term downwards trend.
If Super Cycle wave (II) is a complete zigzag, then Super Cycle wave (III) must begin upwards. So far intermediate wave (1) may now be complete as an impulse.
Intermediate wave (1) lasted 28 days (not a Fibonacci number). Intermediate wave (2) should last longer; corrections are usually more time consuming than impulses, particularly first wave impulses. Intermediate wave (2) is most likely to be a zigzag and most likely to end about the 0.618 Fibonacci ratio at 31.21.
Minor wave B looks like a three wave structure and is a 1.1 length of minor wave A. This indicates intermediate wave (2) may be unfolding as a very common expanded flat correction. At 31.85 minor wave C would reach 1.618 the length of minor wave A. This is somewhat close to the 0.618 Fibonacci ratio at 31.21.
Minor wave C is highly likely to make at least a slight new low below the end of minor wave A at 35.25 to avoid a truncation and a very rare running flat.
Draw a trend line (shown in cyan) from the last high across the first two daily highs. Along the way down, upwards corrections may find resistance at this line, if price can get that high again.
Intermediate wave (2) may not move beyond the start of intermediate wave (1) below 26.06.
It is possible but fairly unlikely that intermediate wave (2) is over at the low labelled minor wave A. It would be more brief and shallow than second wave corrections normally are, but it is possible. If upwards movement continues to be strong and shows an increase in volume, then this possibility would increase in probability.
Click chart to enlarge. Chart courtesy of StockCharts.com.
Price shows divergence with RSI as price moved lower.
The fall in price was supported by volume. The rise in price from the low in February is supported by volume. This favours the main wave count.
The three monthly candlesticks for January, February and March create a Morning Doji Star reversal pattern. However, this is a warning of a trend change and not definitive. There is an example of a stronger candlestick reversal pattern on this monthly chart for March and April 2015. April 2015 completed a bullish engulfing candlestick pattern; this is the strongest reversal pattern and this example was particularly strong. Yet it only translated to one more month of slight new highs in May before the downwards trend resumed.
On Balance Volume has broken below two trend lines. OBV is beginning to break above the lower line. If the month of April can close with OBV above the lower orange line, that would be a reasonably strong bullish signal in support of the main Elliott wave count.
Click chart to enlarge. Chart courtesy of StockCharts.com.
The possible breakaway gap after price broke above the upper horizontal trend line about 38.60 is now closed. What looked like a possible upwards breakout last week is now looking like a false breakout. Price may find some support about 38.60 before it moves lower.
WTI Crude spot price data on StockCharts does not include after hours data. This means what looks like a red hammer on FXCM data is a green candlestick on StockCharts data.
The green candlestick for Monday’s session is bullish, but this is not enough to indicate a trend change. This strong green candlestick does not support the Elliott wave count.
ADX is declining, indicating the market is not currently trending. ATR is overall flat, mostly in agreement with ADX.
On Balance Volume is moving lower and may find support at the blue trend line. If OBV breaks below that blue line, it would be a reasonable bearish indicator. If OBV breaks above the green line, it would be a weak bullish indicator.
There is negative bearish divergence between RSI and price at the last high; price has made a slight new high above the prior swing high of 18th March, but RSI has failed to make a corresponding new high. This supports the Elliott wave count.
Stochastics also exhibits negative bearish divergence with price. Stochastics has reached overbought. As the market is not trending, a downwards swing may be expected from here to continue until Stochastics reaches oversold.
This analysis is published @ 12:01 a.m. EST on 19th April, 2016.