Has the Oil rally peaked?

[Mercury]

Just moving this one out of Trade of the Month into it's own thread as I think Oil is the main overall market mover at present.

 

I have been on the mindset that Oil is due a drop before another strong leg up to about the $50 mark (Brent Crude) but now I am wondering if there is any actual justification for that and second guessing (re reanalysing) my position.  Would welcome some help here.

 

I have a strong resistance tramline on the Daily with the price action having just bounced back off this.  I have Neg Mom Div on the Daily with additional ones on Stochastic and RSI and Stochastic has just come back below the over bought line.  All this happened just below the 38% Fib off the W2-3 wave (Pink labels).

 

On the hourly I have a decent A-B-C EW count with a final 1-5 on Wc (albeit that another leg up to the 38% Fib is not at all out of the question).  There is Neg Mom Div on the Hourly too but perhaps has a bit more development in it still.

 

I am already short at 4110 from a few days ago with stops above the 38%, likely a bit premature but often the Fib line is not quite hit.  Given all this I am wondering if we have seen a W4 (Pink label) and will not see a drop to a final lower low to mark the bottom or Oil or will this turn out to be a Wa of a larger A-B-C?  For now maybe it doesn't matter so long as we get a drop and reanalyse as the next few weeks unfolds.

 

Here are the charts:

 

[Mercury]

Brent Crude has just bounced back off my Daily chart tramline resistance with a Neg Mom Div on the Hourly and a nice Triangle formation in play.  If the prive breaks the lower Triangle line we could be in a for a drop.  How far depends on whether this is the end of the rally or just the end of the first leg up.  Time will tell but I think we are in for a decent drop on Oil (and also oil producers - see my other post on Shell as a proxy for Oil)

 

Here is the chart:



[Mercury]

Having just had an interesting discussion with Caseynotes and others on Levels vs Indicators and the difficulty of using indicators where  mentioned I occasionally use alternative indicators I thought I would share this on Oil.

 

Someone I know uses MACD and MA on Oil as well as primary EW/FIB etc and recently posted that Oil would hit 200MA and rebound.  If you look at Oil (Brent or WTI) on the daily charts you will see that is exactly what happened and with MACD keeling over the conclusion is that a pull back is on.  But is the rally over or only half way?

 

In EW terms it looks like the Wa of an A-B-C and in MA terms Oil may pull back to the MA50 before moving into Wc rally to complete the move.  Such a scenario would result in a drop to the area of $37 (Brent) and a rally towards $60.  Interestingly $37 coincides with the Fib 38% retrace (18 Mar high - Jan low).  If Daily Stochastic also moves from over bought to over sold in line with all of this then the odds are good for the A-B-C scenario and a Wb conclusion in or around $37.  If not then the A-B-C is already done.  Looks like the $37/MA50 is a potential telling point.

 

This would also indicate where Shell Oil might go.

 

Let's see... 

[Mercury]

Anyone interested in Head & Shoulders formations?  I must admit I use these infrequently and usually only at major turning points so this one may very well not be significant but if it is then we could see a pull back to the neck line (blue line) between the 2 shoulders (blue circles) for a kiss and the drop.  Such a moove would also confirm the wave down, but not whether this is a Wb or a W1 down of a bigger move alas.

 

Here is the chart:

 

[Mercury]

Just a quick update, Head & Shoulders necklines should be drawn through the congestion zone rather than the tail extremes so the neckline, if in play, should be positions as follows:

 



[Mercury]

For those wondering about the correlation between Oil and Stock Indices, I guess that is now resolved in that they aren't.

 

Oil placed a kiss on my Neckline this morning (will Shell do the same with the Triangle line?).  Looking for a drop away over the next hour or two.

 

Here is the chart:



[Rocketman]

I would tend to agree on a drop given my analysis and rejection on 4hr charts BB's - and expected reserves this afternoon at 3:30pm.

 

Yesterday's rally was merely a response to economic statements later in the day.

[Mercury]

Very spiky beast is Oil and I wasn't very confident in the Head & Shoulders (I prefer to rely on them at major turns, which I don't think this is).  However it did meet resistance at the 50%fib after the oil stocks data release caused a spike.  It could very well go up to the 62% but at present the retrace in A-B-C set up looks decent.  I am leaning towards the A-B rather than 1-2 on my brown labels for the moment but either way it looks set to drop from here of from a slightly higher point.

 

Shell had rallied back to the 76% (probably also spurred on by the stock indices rally in general after the usual Yellen blah blah) but finding resistance there (also coincidental with the 38% Fib off the previous rally).  A touch on the Shell down-sloping tram is still possible (if Brent does go up one more leg) but otherwise also looking set to continue a retrace in A-B-C formation.

 

Brent chart:



[Guest Rich88]

Wti topped out at 50 October last year, could 40 be the new top this year

[Mercury]

Could be but also could be that we still have a Wb and Wc to go of a Big picture 3-4 retrace rally.  Time will tell.  Useful to be short for this though as then you have the option to hold or cash.  I have a few positions so I can cash some and hold the rest.  Best of both worlds.

[Guest Condor]

I picked up some RDS'B' yesterday in the Crude Oil dip at 1659p for my have and hold portfolio, they closed today at 1714 but i expect and hope they'll fall again well below 1659p. I'm also positioned short on US Oil with fingers crossed for $32-$30 anytime in the next 3 months, it's certainly oscillating at the moment.

[Rocketman]

Not expecting a geat deal today given yesterdays moves and the Non Farm due tomorrow. Will position either side for a short term breakout to go and test the weekly S1's on Crude and we are close to  last lows so possibly just a pip hunting day. But if it breaks south we could head towards 36 pretty quickly and drag Brent along for the ride.

 

 

[Guest Rich88]

Will be interesting to see if it sells into the US open, considering the 100 pip drop yesterday at 16:00 gmt

[Mercury]

Probably right that the movement today will not offer a day trade but it may very well offer an excellent medium term trade entry.  If my EW count is right then we have seen a completion of a 1-3 (or Wc) and can now expect an A-B-C retrace back down (A Wb of a larger A-B-C is still firmly ont he cards.  The point here is that under any scenario the indicated direction is down so finding good short entry points is the name of the game (for now).

 

On the hourly chart I have a move completed with yesterdays price action labeled as either an A-B or a 1-2 followed by a sharp drop.  I might expect this to retrace a bit to form a 1-2 of a W3 (or Wc) OR it could charge on down very fast.  In the former scenario the Fib 50%/62% (Brown Fib on the chart below) could be good Short entry points but the Head & Shoulders neckline could also play a part (use this for stop levels on any initial trade is going in on the Fibs.).  In the latter scenario a break of the recent lows and the down-sloping trendline pair (brown lines) could indicate the fast drop is on.

 

How I playing this is to set a Stop in order below the recent lows to catch the latter scenarion and a limit order at the 50% Fib.  Of course I may adjust these levels based on how things evolve.

 

BTW, not sure NFP is that relevant for Oil, have you found it to be so?

 

Here is the chart:

 

[Guest Rich88]

Unless nfp is extremely strong then I don't think it'll affect markets much. There might be short term movement and a few sells due to end of quater, but overall will be range bound till next week now.

[Rocketman]

NFP can have a short term impact as it drives the $ and hence price of oil, plus can indicate a slowdown in the economic recovery and demand for oil.

[Guest Rich88]



[Mercury]

Fair points and I agree but as you say, short term volatility only.  Oil is not a market I would ever advocate for day trades, far too spiky and subject to bigger picture forces for that.  Therefore, so long as your trades are protected against the short term volatility at NFP release you should not need to worry about that particular data.  Unlike other markets where FOMC and NFP can trigger a turning point or accelerate an existing trend, I don't think this is the case for Oil or commodities generally as the market is much more global and (in the case of Oil at least) governed by some very big and influential players.

[Rocketman]



[Mercury]

Looks like it is the retrace W1-2 scenario that is emerging rather than the immediate break down.  Seeing the same on Shell Oil.

 

Fib 50/62%, neckline kiss?  Dunno but should bee a Short around here somewhere.  Let us know if you spot a good entry point.

[Mercury]

Sorry, should have added that there is a junction between the neckline and the 38% Fib (between the 18 Mar high and 29 March low).  This is just above the small rally Fib 62% and could be a good bet if it travels that far.  May take a few hours so patience is required.

[Guest Condor]

Do you reckon this is a Head and Shoulders forming (the 62% -ish Fib) being the second shoulder?

[Mercury]

Hi C,

 

The two shoulders are represented by the blue circles in my previous chart in the thread with a blue line running through them being the neckline.  As I said in that original post I am not that confident in this set up because it comes mid cycle rather than at a major turn (unless of course this is a major turn...?) and on the hourly rather than the Daily (which I prefer for H&S formations) and Oil can be spiky, which means it doesn't obey the norms of charting that well.  Still the confluence of a potential neckline and the bigger Fib 38% and the small fib 62% does offer an enticing entry point if we see price kiss and bounce back down from this area.  Even without the H&S line a confluence of 2 Fibs from different but related moves is usually a decent bet. 

 

Chart added here for convenience (the rightmost red circle show the potential short area I am tracking towards):



[Guest Condor]

Ah OK M, that makes sense, thanks for the explain, I follow your post above re your rightmost red Circle as a shorting area (4064)

I was looking at a H&S on Rocketmans chart earlier (R1-R2 red line) which may work out to be a similar shape.

Thanks again C

 

 

 

[Mercury]

Can't say for sure it will reach that area, 50% fib providing resistance at present but may still spring back up in a clear A-B-C.  If not a break below the recent lows offers another entry point.

[Mercury]

Bounce back off my Short zone, will it hold?  If Shell Oil is any guide it will drop from here!

[Mercury]

4 attempts to break the congestion zone failed.  Looks like my Short could be a winner.  Wave 3 should run down for quite a bit from here.

[Mercury]

Well the kiss on the neckline turned out to be text book, apart from the spike through the day before but Oil is a spiky market so that is to be expected.  I now have a nice pair of parallel trams (brown lines in chart below).  If the price breaks the lower one we can expect a strong drop I think to continue this W3 down.  How far it goes I can't tell yet but the theory suggests at least as far again as the distance between my two trams...

 

I have a Short just after the rally high, another at Wednesday's high, another at yesterdays high and another at this mornings high.  If it breaks the lower tram I'll take another and cash the lot near the end of W3 and pause for a rethink.

 

Chart:

 



[Guest Rich88]

I can see oil breaking this new trend

[Mercury]

HI Rich,

 

By breaking it you mean reversing and heading back up or breaking the longer term trend and heading back down?  In either case can you share your logic/reasons?

 

Cheers,

 

M