An inside week this week leaves both Elliott wave counts for Oil valid.

Summary: Oil may have found a major sustainable low.

A slow rounded top may still be forming.

A pullback is still expected. If the pullback begins to develop strength next week, then it may end about 27.59. 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.

FIRST 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 continued higher as a double zigzag. It would now be 1.50 times the length of intermediate wave (A), which is a little beyond the common range for intermediate wave (B) within a flat from 1 to 1.38 times the length of intermediate wave (A), but within an allowable limit of 2. This reduces the probability of this wave count to about even with the second.

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.

SECOND DAILY CHART

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It is possible that primary wave 1 is continuing higher.

Intermediate wave (5) may be an ending contracting diagonal. Within the diagonal: minor wave 3 is shorter than minor wave 1, minor wave 4 is shorter than minor wave 2, and minor wave 5 must be shorter than minor wave 3 (it must end before the limit at 45.85).

Minor wave 4 may have continued sideways this week. Minute wave b within minor wave 4 may be a double combination. This labelling fits on the hourly chart. A truncation for minute wave c is avoided. 

Minor wave 4 within the diagonal may not move beyond the end of minor wave 2 below 38.72.

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 still be a reasonable expectation.

DAILY CHART

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

There is still double bearish divergence between price and RSI. The probability of a multi-week pullback remains high.

If On Balance Volume remains above support, then expect price may continue higher as per the second wave count. If On Balance Volume breaks below support, then look for a pullback as per the first wave count.

Published @ 06:12 p.m. ET.

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New updates to this analysis are in bold.