Oil has broken support

[jbtrader]

The trend lines have been broken.

The hard part is finding where to get short.

I fear this could get very ugly very quickly.

 

[Mercury]

I tend to watch Brent Crude as the overall global oil barometer but it should be similar to US Crude.  Just to let you know I use Tramline, Fibonacci, Elliot Wave count and Momentum indicators as the backbone of my analytical method.  Right now I think we are in a counter trend rally that will retrace at least to Fib 50% of the recent move down to the Jan lows of $27.40.  After that I think we see another final leg down to complete the overall drop and then the bull will reemeerge.  Of course the Jan lows could be the bottom but time will tell.  For the immediate time period I thing we are seeing a small retrace back down before a final push up to the 50% retrace.  I expect to see a drop to about the $36 mark before that final push up.  All subject to change of course as the market unfolds but I am seeking to go long at about $36 and then to reverse at about $47/8.

 



[Welshman]

Hi Mercury, nice one.

Like you I use EW and trend lines and have basically same count as you.... and an alternate possibility. See monthly chart attached with a possible ED , what do you think?

Good to have you on board

 

[Mercury]

I never really use the monthly, the danger is you lose too much movement detail.  I start with the weekly but in this case it shows the same thing and I agree with you on the potential A-B-C big picture.  In reality I think it doesn't much matter whether it was a series of 1-5s or a big A-B-C as it all comes to the same point with the end of the current 1-5 wave down (which could be a Wc too).  The trick with EW for me is not to get too obsessed with perfection as there are always at least 2 options.  That is why I use other methods together with EW to try and hone in on the one I feel has the max probability of being right.  EW alone is too dangerous and open to too much confirmation bias risk.

 

My big picture on Oil (corroborated with my analysis on Shell - see separate post), si that we have yet to see the bottom.  On the weekly (see below) could my big wave 3-4 (purple labels) move down to where I have the pink 3-4?  Does it matter?  We have a break of the upper tram, which is bullish, and positive momentum divergence BUT on the daily we have Neg Mom Div developing and have not yet seen a significant Pos Mom Div to indicate a major trend reversal.  On the weekly we are also approaching a Stochastic high, not quite there yet.  Taken all together my current view is we are in a relief rally (A-B-C correction - with A completed).  Thus I forecast a Wb down Wc up to a suitable Fib retrace line (TBD) and then a final leg down to perhaps $20?

 

Of course we could have seen the bottom as some are suggesting but as a contrarian I see the mainstream media comments on oil stabilising as preparation for another drop.  MSM never gets it right as they react to the market rather than preceding it.

 

Will be an interesting ride.  My strategy is to swing trade this one, I am currently short at the Wa turn (Brent and Shell), will exit at a suitable Fib and seek a reversal to catch the Wc.  Stop protected now so looking ok.

 

here is the chart:



[Welshman]

Great, and thanks for your detailed response, appreciated.

 

To get the long-term picture I use the Monthly charts  (the chart I attached was WTI) and gradually move through the timeframes to get a trade proposition. The point I was trying to make was that Oil may not yet have bottomed and has further to go after this current correction , so it seems we agree.

 

I think this correction may well have further to go and I'm monitoring action for a short entry later.....

 

Good to have you on board

[Mercury]

No worries, I got the point and we are agreed.  Everyone has slightly different methods, so whatever works for ya but I also agree with the approach of starting with the big picture and honing in.  I prefer Brent to WTI but again it is a personal preference.  For me Brent is the global standard but I often prefer to trade Shell as a proxy for oil rather than oil itself as it can be very spiky.  Take a look at Shell, you might find it interesting.  I think the EWs are much clearer on Shell.

 

Wise to wait and see if the retrace works out but the moves are so big that I can't resist a cheeky swing trade set up - bit of a weakness of mine I must admit, often I'd be better off waiting.  In order to get a decent push up to, say, the Fib 50% I do expect an decent drop to a Wb but this market often surprises so let's see.

 

Glad to be aboard, let see if we can get some other EW enthusiasts posting with us, the more brain power the better the analysis.