My last oil chart posted some 10 months ago anticipated a drop to 35 area in 5 wave decline from Aug 2013 high (chart link below). That has been met and some.
Some details have changed from last chart but not in the way that would make significant difference, therefore, I will not repeat the thinking behind my analysis, but rather focus on what I think appears to be clearer and will help in trading planning.
Media and commentators are now coming up with some extreme targets and based on some fundamentals, USD strength and geopolitical developments. Therefore, I suspect that the price action could frustrated both the Bulls and Bears before clearer directional move develops.
Here is the summary of observation from the chart: 1. The decline from 2008 high is evidently in 3 swings even though it looks very impulsive and dramatic. 2. The rally back up from the low in Jan 2009 to May 2011 is also in 3 swings retracing just over 61.8%. 3. Subsequent decline from May 2011 is also in 3 swings, a, b, c which is 5 wave from Aug 2013 still in progress but could be close to completion, ie it is in final stage, wave "v" of 5. 4. Wave "v" of 5 so far appears to be forming and ending diagonal (falling wedge) though not yet confirmed. 5. The drop so far since May 2011 has reached approx 75% of the price and historically in 1990 and drop in 2008 both terminated at 75% & 77% (approx) respectively (see chart below) 6. If the above observations hold and in particular we have final wave "v" of 5 as ending diagonal, then the low could form between 25 - 27 or little lower but doubt it will hit 20 which is widely expected in the media. 7. Low in this region would make a total retracement of 88.6% of the move from 1998 low to 2008 high and is in proximity of other Fib projections.
Beyond that, since the price action has breach the 2009 low, the idea outlined previously of potential triangle is no longer in play. Instead what we might have (not confirmed) is a leading diagonal which has 5 waves consisting of 3 swings each, ie 3-3-3-3-3. OR some other combinations. Regardless then anticipated rally will be limited to 60 -70 zone before further weakness develops.
Under this scenario the 2008 high would not be surpassed for many year to come. May be even decade or more to come. However in the meantime the anticipated low will allow longer term bullish trade to be considered directly on Oil or shorting the companies whose energy bills form significant part of operating cost such as airlines and transport.
As always, do your own analysis for your trade requirement. Select to follow me and the chart for notification of future updates. If you like the analysis then please indicate this by thumbs up, constructive comments and sharing with others. If you have an alternative idea then please share for all to learn from.
Thank you for taking the time to read my analysis.
UPDATE - Possible low for oil could be in which appears to be supported by the following:
The US Oil & UK Oil correlation chart is interesting. They broadly move in sync, but at important points one of them gives an early signal by few days to weeks, as seen with my notes highlighted this on this monthly chart. UK Oul made spikle low in Jan and US Oil made new low In Feb suggesting divergence and potential turning point
Similarly the UK oil appears to have completed falling wedge made up of entire decline as seen in this chart with other technicals lining up too and RSI is coiling which could break to the upside
Finally the falling wedge on US Oil we noted on the original chart above also appear now complete and whilst it is safe to look for confirmation, taking in all of this together and the along with time symmetry suggesting possible low in February and Seasonal pattern supporting low around this part of the year, I am conclude that the significant low is formed and that we will not be seeing price anywhere near 20 in this cycle.
numotion
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Hi DanV, Thanks for (all of) your analysis. I notice this (unclosed) gap around $22 on 2002-03-05 in the daily and weekly charts. What's your opinion on that with regard to bottom formation and EW?
DanV
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Thank you for your appreciation and question.
I see that gap, not particularity big one but it is there. These gap are not rare unless very significant ones and in close proximity, not sure if they all necessarily get filled. If however it does then it mean I have misinterpreted the wave counts somewhere. So I would not completely rule this out just yet. Either way a confirmation would help. So far it seem on Hourly that we have possible minor 5 wave impulse move up and are retracing this in abc zigzag. If this holds then we will see strong move up forming new HH in due course.
numotion
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Thank you. I double checked this gap on Avatrade charts and it did get filled there. So maybe it is a TV glitch.
DanV
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Ahh OK, thanks for that.
There are times when different data vendors might have different prices unless we a look at official Futures contract. Even then on occasions a gap might occur in Futures contract but not in cash market.
Regardless will be very interesting to see how this develops.
DanV
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It seems that the low we were anticipating is in and a retracement 33 - 32 range might hold in order to form a higher low as it develops new uptrend
Charts
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Do you have any targets to the upside?
DanV
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Thanks for your question.
Probably in the region of $60 - $70, but not it the straight line. We have possible Bounce in dxy which would suggest a retracement in the oil could follow before continuing to the upside.
Charts
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I am having trouble putting vague labels if a follow retracement is to come.
DanV
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That is probably because the wave counts are not clear. Quite possibly it is not 1 -5 wave impulsive move of the low. Rather sets of double zigzags with each also exhibiting minor zigzags. Or if your wave counts from 1 -5 are correct then possibly it is and abc with wave c forming potential ending diagonal. It has probably formed a top or could push into 45 - 46 zone before retracing as shown in my charts. The earlier pullback suggested did not materialise deep enough and that correction still lies ahead I think. Hope this helps.
The US Oil & UK Oil correlation chart is interesting. They broadly move in sync, but at important points one of them gives an early signal by few days to weeks, as seen with my notes highlighted this on this monthly chart. UK Oul made spikle low in Jan and US Oil made new low In Feb suggesting divergence and potential turning point
Similarly the UK oil appears to have completed falling wedge made up of entire decline as seen in this chart with other technicals lining up too and RSI is coiling which could break to the upside
The we have this coincide by record short position by Hedge Fund Managers Chart link from Bloomberg - assets.bwbx.io/images/i69Z9Dh2xtRc/v4/-1x-1.png
Finally the falling wedge on US Oil we noted on the original chart above also appear now complete and whilst it is safe to look for confirmation, taking in all of this together and the along with time symmetry suggesting possible low in February and Seasonal pattern supporting low around this part of the year, I am conclude that the significant low is formed and that we will not be seeing price anywhere near 20 in this cycle.