A downwards week only fits the main daily Elliott wave count, which is the only remaining short-term wave count this week. The two alternates are now invalidated.

Summary: Oil may have found a major sustainable low.

A slow rounded top may have formed. A pullback may now begin to gather strength.

For the mid term, a multi-week pullback may end about 32.67. It is possible the pullback may be deeper than this though; the first major correction within a new trend for Oil tends to be very deep.

When this pullback may be complete, then an upwards trend should resume with increased strength.

ELLIOTT WAVE COUNT

MONTHLY CHART

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The basic Elliott wave structure is five steps forward and three steps back. This Elliott wave count expects that US Oil has completed a three steps back pattern, which began in July 2008. The Elliott wave count expects that the bear market for US Oil may now be over.

A channel is drawn about Super Cycle wave (II): draw the first trend line from the start of cycle wave w to the end of cycle wave x, then place a parallel copy on the end of cycle wave w. Price has bounced up off the channel. This trend line is breached, which is a typical look for the end of a movement for a commodity.

The upper edge of the channel may provide resistance.

Following five waves up and three steps back should be another five steps up; this is labelled Super Cycle wave (III), which may only have just begun. Super Cycle wave (III) may last a generation and must make a new high above the end of Super Cycle wave (I) at 146.73.

Super Cycle wave (III) may only subdivide as a five wave impulse. New trends for Oil usually start out very slowly with short first waves and deep time consuming second wave corrections. Basing action over a few years may now have begun.

WEEKLY CHART

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Super Cycle wave (III) must subdivide as an impulse. Cycle wave I within the impulse may now be unfolding higher. Cycle wave II may not move beyond the start of cycle wave I below 10.24.

DAILY CHART

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Primary wave 1 within an impulse for cycle wave I may now be complete.

Primary wave 2 may be unfolding as an expanded flat correction. Intermediate wave (A) within the flat may be a complete zigzag. Intermediate wave (B) may have completed as a double zigzag. It would be 1.24 times the length of intermediate wave (A), which is within the common range for intermediate wave (B) within a flat from 1 to 1.38 times the length of intermediate wave (A), giving a range from 40.44 to 42.75.

Intermediate wave (C) may only subdivide as a five wave motive structure, most likely an impulse. If the target is wrong, then it may not be low enough.

A target is calculated for primary wave 2 that expects a common Fibonacci ratio between intermediate waves (A) and (C).

Primary wave 2 may not move beyond the start of primary wave 1 below 10.24.

ALTERNATE DAILY CHART

Last week’s alternate chart considered primary wave 1 continuing higher with an ending contracting diagonal for intermediate wave (5) within it. The diagonal is no longer valid; minor wave 4 would be now longer than minor wave 2, breaching the rule for a fourth wave within a contracting diagonal. The wave count is this week discarded.

TECHNICAL ANALYSIS

WEEKLY CHART

Click chart to enlarge. Chart courtesy of StockCharts.com.

Resistance about 42 so far is holding. A pullback about here would be a reasonable expectation.

DAILY CHART

Click chart to enlarge. Chart courtesy of StockCharts.com.

Bearish divergence with price and RSI is clear. The probability of a multi-week pullback remains high.

A rounded top looks to have formed. Volume is pushing price lower on Friday. Watch the trend lines for On Balance Volume carefully for a signal next week.

Published @ 06:35 p.m. ET.

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Careful risk management protects your trading account(s).

Follow my two Golden Rules:

1. Always trade with stops.

2. Risk only 1-5% of equity on any one trade.

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New updates to this analysis are in bold.