Has the Oil rally peaked?

[Mercury]

I believe I can answer the question in the title.  Oil has peaked, at least for now.  "Famous last words", I know right?

 

Take a look at the weekly chart below.  It shows me a very decent set of long term trend lines after the main bearish drop.  Wave 3 makes the lower line with a slight over shoot on wave 4 but look at the prior pivot touches on both lines.  And now the final extended wave 5 has complete its internal 1-4 we should get a final fifth wave down to the bottom of the market.  And if that happens then this time the stock markets should join the party (wake?).  Timing works too as a Summer Bear is a likely scenario for stocks and Copper has also turned down while gold is buoyant and USD is strengthening plus Vix is up and 10 year US bonds yields are down.  All in all things appear to be coming together.

 

For the short term I expect a brief relief rally in EW1-2 and then the final 5 really gets going.

 



[Mercury]

We can't quite call it yet but the market is shaping up nicely to confirm a turn bearish.  We should get this in the coming week (or a negation of that veiw of course).  Currently I see a nice 1-5 down and the retrace is under way with an A-B in and on the way back up the Wave C.  The B went very low and so I don't expect Wc to go to far beyond Wa.  There is a good resistance zone just above Wa to target for a Wave 2 turn and then Wave 3 down would be long and strong.  I also have a redrawn set of tramline with a tram break and kiss back at Wave A.  I'd be surprise if we get a second kiss on the tram at Wave C given the resistance zone but I suppose it is possible (Oil is spiky).

 

Look forward to thoughts and alternatives if you have them.

 



 

 

[Mercury]

Very nice observation of the head & shoulders formation, which I hadn't spotted but have now added to my analysis.  There is a **** of a lot going on in technical analysis terms on this market just now, it could turn out to be a classic case study of a major turning point.  If you look at my 4 hour chart below you will see a nice tramline pair with a break and double kiss back (albeit with long tails but you get that with Oil and on the 4 hour).  Additionally there was a price gap this morning and bear in mind that such gaps are usually filled, unless they are break away gaps and these occur at major turning points in a trend, which this would not be if heading up as that would already have happened at $28.  If you look at the hourly chart you will see another tramline break and kiss back, this time, in close up, without the long tails.  There is a nice 1-5 shape about the recent down wave and so far the retrace is showing as an A-B-C (albeit not yet completed - unless my Wave A was in fact the Wave 2 - possible).

 

Overall my assessment is for the retrace to continue to into the congestion zone and maybe give a kiss on the 4 hour tram before resuming the bear trend.  My strategy here is to stop protect my Short at the last turn at B/E (or small loss just above the high point) and take an additional Short at a turn in the congestion zone and/or take a short at a break through of the lower congestion zone and H&S line (watch out for a retrace and kiss back on the H&S line after any break).  On one point I disagree with the Saxo guy, I don't see a break of $46 as a buy signal.  For me the price has to breach the recent high to negate the bearish scenario.

 

Thoughts anyone?

 



[Rocketman]

excellent piece of analysis - and right on the money !

[Guest Condor]

agree  thats spot on analysis by @mercury ...saw the future, price  kissed back on H&S line - hoping price rejects that line as it is now resistance. C

[Mercury]

 Thankfully it happens enough to keep me ticking over but not as often as I'd like.  Of course it is one thing doing the analysis and a whole other thing selecting the entry and exit points but that's a topic for another thread.

 

On Oil right now I see a retrace happening, which may or may not be the completion of a first leg down (there could still be a bit to go on that with some strong support just below between $4270 - $4325) but either way I would say that given the strong bearish move from 11am yesterday we are indeed in a wave 3 down and now looking for the first retrace on that wave, after which the next leg down again should be a long and swift move.  There area few possible turning points but I'm aiming for somewhere between a kiss on the tramline and a kiss on the neckline (that is between $44.80 - $45) or maybe both???

 

My strategy now is to seek out that retrace turning point but if I miss it I will aim for a stop in below the afore mentioned support level IF the market is moving down strongly.

 



 

 

[Guest Condor]

my eyes must be wonky - hasn't come up to the line yet...     can see clearly on your chart just posted.  Thanks for posting, C

[Mercury]

No worries, happy to help.  It is a struggle sometime to keep on top of everything, especially if you are in a number of different markets.  When I have made those kinds of errors myself (and I have made many!) it is usually because I was distracted by something else OR got a little over excited about the prospect of a big move and wanted to get on (lacking patience and a back up plan) OR my chart was too cluttered so I couldn't see the woods for the trees and needed simplification.

 

Always worth asking yourself why you did something and be stern with yourself in answering, we should all be our own worst critics (not so much as to knock out confidence of course...)

[donaldprice]

Hy Mercury, something caught my eye last night, and i noticed what appeared to be an ABC pattern and i reassessed the tramlines and chart in general. It does appear that we are in the middle of W5, however an ABC pattern has emerged, therefore if we complete this retrace no doubt head lower.

[Mercury]

You have hit upon a classic issue with EW theory  in that a 1-2-3 looks very similar to an A-B-C and often we can't tell which it is until the end...  So what do we do?  Well as we have been discussing on other threads from some great video posts by  it is all about putting several analytical tools together and doing this on several time frames.  There is a book called "Trading for a Living" by Dr. Alexander Elder (of the Elder Ray indicator fame) who was a practicing psychologist which is a great general education about various charting and indicator methods and he talks about using what is described as a 3 screen trading method.  This is essentially the same as the multi-layered approach on one of  video posts.  I use Weekly, Daily, Hourly (and occasionally 15 minutes to focus in on a final wave count, especially for ending Triangles).  I trade off the hourly, which is what we usually discuss on the forum.

 

So to help me discern the woods from the trees I look at Daily (plus 4 hourly for congestion zone) and here I see a firm turning point on a strong tramline and a Head and Shoulders formation.  The market broke this H&S neckline strongly yesterday and is now retracing back towards the neckline (it is a classic more to give a kiss back on a neckline before being repulsed away strongly again and this is also a classic pattern for wave 3s).  If you look at the 4 hour chart you will see that the neckline lies within a congestion zone.

 

Therefore while I couldn't reject your assessment at this stage I think the balance of likelihood is for a bearish move.  However I will stop protect against a strong move up out of the afore mentioned congestion zone.

 

Thoughts?

 

 

[donaldprice]

No doubt and therefore can always make you question your own analysis when spotting these patterns, overall i do looking at this bearish as the overall momentum is leveling of, and the bears do seem to be tackling this. I always keep a spear eliot wave book by me as you can quickly sometimes potentially misinterpret what you see on the chart. you always have to weigh up the probability odds in these scenarios but i thought might just share this to see what you think.

[Mercury]

Of course, gald you did  that is the way we can all get benefit from the forum.  And you may turn out to be right with this, who knows.  You did remind me that there is always an alternative so I should not get too carried away with the big bear possibility here but play it cool and above all manage my risk and my overall account.  I have adjusted my stops accordingly...

[Mercury]

So Oil spiked up a bit more than planned, hardly a surprise that given the nature of this market but it does look like it caught a strong rebound off resistance levels at the Fib 50% and is currently retesting the head & shoulders neckline and my lower tramline.  If it breaks back below these two I think that will be sufficient confirmation of a longer term bearish move.  For those of you who line "reasons" for such things check out this little snippet from the BBC:

 

http://www.bbc.co.uk/news/business-36263713

 



[Mercury]

Neckline and tramline is currently providing support so the critical break has not yet happened and on to plan B.  If yesterdays turn was a Wave A and a common Wave A Wave C ratio is 1 : 0.618 and this holds in a 1-5 pattern on the currently rally this would place Wave C end almost exactly on the Fib 62%.  Therefore if we see a 1-5 (look on the 15mins chart for that) with a turn at Fib 62% it is most likely the end of this retrace and a high likelihood Short opportunity.  Failing that wait for the eventual break of the neckline.

 



[Mercury]

So does this post oil inventory rally mean the Bulls are back in town?  I don't think so, not until the previous high is exceeded.  My previous analysis called EW1-2 moves prematurely and now I can see a clearer picture on the 4 hour chart with a possible EW2 nearing completion at or around the tramline Kiss and Daily resistance line.  On the 15 mins chart an A-B-C formation is in play with wave C still to complete a fifth and final push up (to the tramline and daily resistance?).  A breech of the previous high point negates all this but a strong turn here means wave 3 down starts.  Should know soon enough.

 

 

[donaldprice]

From a news point of view it was pretty obvious oil would have rallied considering the events occurring in Canada, Libya and Nigeria with their unintentional oil out put cut. However I don't dismiss the fact this could still turn lower. Therefore I produced the following re-assessment of the charts below. Double top formation on 2h chart also cited.

[Mercury]

If at first you don't succeed, try, try , try again.  I have to admit I got too short term on Oil recently and needed to exercise more patience and let the move evolve.  Does this mean that I am reversing my position?  No!  Not unless there is a confirmed break out above my weekly tramline (see below).

 

Things are getting close so I am looking at the 15mins to see if I can pick out the move.  Currently Brent could offer us a double top, with a potential ending triangle on the 15mins clearly evident (which could also be EW3-4 of the final move up but more on that in a bit).  For now there is strong Neg Mom Div on both 15 mins and Hourly charts suggesting at least a retrace.  On the 4 hourly I have redrawn my tramlines and still have a potential kiss back after the break below.  On the Daily I have that potential double top with Neg Mom Div and high RSI/Stochastic and the same on the Weekly BUT there is that nice weekly tramline pair so a final push up to complete the large scale rally around the tramline is distinctly possible (this would be in the region of 4880 with strong resistance zone up to about 5000).

 

In summary I can't say this rally is over yet but I do believe it will end soon and then drop hard.  A break through the congestion zone above negates this position and beings fresh highs in the $65 area into play.  There will be related consequences for the stock indices also.

 

Thoughts anyone?

 



[donaldprice]

Could not agree more, my charts show a very similar scenario, although oil inventories where good yesterday, the fact that the US just now showed a rise in unemployment, and the constant threat out in the middle east we could see a Wagner "ride of the Valkyries" scenario lol, if of course it fails to close beyond that tramline point on the weekly chart. Bear in mind we also close to the 61% fib level as well, and momentum also not showing massive strength either. However price confirmation of course will be key.

[Mercury]

True but the Oil inventory is just a moment in time and overall we are still awash with oil just now.  This, coupled with the Saudis wanting to float 5% of their sovereign oil company and therefore needing to cook the books ahead of that, suggests more pumping to come.  In terms of technicals check out the volume on Oil (and Copper) along the recent rally (available on IG charts but not PRT for reasons passing understanding...).

[donaldprice]

So wet kiss on the tramline after completing is ludicrous ABC pattern and now heading lower for the moment, just waiting for that supernova!

 

 

 

[Mercury]

Price has to make a close below 4575 to negate upward move for me.  Until then exercise caution.

[Guest Rich88]

Oil is showing topping signs around 47 handle. If we don't get stronger buying to push this higher then this could be a great short back down to 44.50

[Mercury]

 I think you may be proved right.  Have we just witnessed a clear out of the last bulls?  The volume of that push up was small and so far the volume of the push back is larger, none of it is at all big, all the large volume came ages ago...  is the bull rally running on vapour now?  Stong Neg Mom Div and RSI/Stochastic drop out of over-bought add to the picture.

 

Added to this I still have that tram break and kiss back on the 4 Hourly chart and a break and kiss back of a Triangle on the 15min chart plus now a double top with Neg Mom Div too.  It is Oil so you can't bet the house on it but all in all that is a lot of Bearish indicators.

 

 

[Mercury]

And yet the price rises!  I think it is speculation rather than fundamental that have been driving this rally, a lot of "wise" people have been telling anyone who would stay still for long enough that oil is cheap and should go back to $65 and beyond longer term so get in now, which it looks like a lot of people did back when it was $28-35.  Long term outlook is probably right, until new tech takes over I guess and then the whole market could be a bust, but at some point the supply picture and the economic picture has to come to bear right?

[Mercury]

Yes but that makes perfect sense to me LOL!  Then again I am a contrarian so I love a bit of over exuberance, even euphoria.  Perhaps we can say that the idea of fresh all time highs is euphoria?  As always it is about timing and as we can never time the tops with any accuracy we have to take our chances and manage our risk so as not to loose out shirts and live to fight another day.

 

BTW, do any of you day traders have a view on current moves on stocks?

[donaldprice]

It appears, that some oil companies are now hedging their position in case on a significant reversal in the oil price. Because of the recent inventories coming down somewhat due to Canada fires and Nigeria also at a 20 year low and appears Goldman has also become bullish, however they do highlight that recovery in the price will be gradual. I did recently look on the weekly chart and after a while I drawn to the conclusion that we may have seen possibly the ultimate low, I don't dismiss the fact of a possible retracement. The Saudis and Iran are still in conflict and with the hot summer months coming in the are committed to ramping up production as required. I still think that key levels to watch will be that 50% level of which is almost smack on the edge of the tramline, failing that 61% could be an area to exercise caution.

 

 

[Mercury]

Goldmans, weren't they calling for $10 oil at one point, or was that Morgan Stanley?  Can't remember.  Smart money is the Oil producers here, they are the only ones who really know what is happening in terms of supply and demand.  I agree with the sentiment in  post, they are showing us the way.

 

In terms of technicals, one way or another, it can't be long now before Oil resolves this current move.  For my money the next move will be down (either a major turn down or a minor in EW3-4 retrace mode).

 



[Mercury]

BTW,  I think that is a few too many parallel tram lines.  They usually only work out to 3 or 4 and then you have to look for a different pattern.  Occasionally you will get more on an hourly chart but not often on a daily.

[Mercury]

Did you know that Goldmans called Oil at $200 before the crash happened in 2008, I got that from Money Week BTW.  Maybe we should be wary when these guys all start calling for the same thing?  Oil may be turning now, too early to confirm but if it does turn from here it is right on the money for me.

[donaldprice]

You can never take these Investment Banks too seriously because they have their own agenda and they don't care either way, just like us. The chances of Oil rising at the same bullish rate for the foreseeable future is unlikely. Their are too many current vested interests not to see this oil price rise continue too much, even though they would make more money, it just becomes more of an incentive for shale produces to switch on their taps. With the ongoing uncertainty from china as well and the bears smelling blood for every opportunity in cable, I suspect this will be a complex ride for both oil bulls and bears.