Brent Crude rally ends, time for the big Bear!

[Mercury]

Looks to me like my question as to whether the the 25 April turn was a rally end or a simple retrace may have been answered as Brent price dropped hard through the supporting lower channel line.  I would like to see the recent lows broken to confirm but odds are that this market is now heading down.  Could this mean that Stocks have also topped out?

On my Daily Chart you can see the lower channel line breach, albeit the day isn't over yet...  There is very large NMD at the Pink 2 turn point, which was inside the prior channel breakout zone, a failed retest.  The EWT count is good to the Pink 2 plus for the green 1-2 as well.  A close below the channel line will be indicative but as break of the key near term resistance is needed for this to have legs.

On my 4 hour chart you can see the price action since the potential rally top with 3 failed tests of the final wave channel breakout zone short of the 7300 mark.  Again NMD at Pink 2 and the price action supports a clear retrace form and channel break.

On the 1 hour close up we can see NMD at Green 2 another failed test of the prior breakout resistance zone at brown 2 and then a steady fall away in a Triangle formation until the gap close and drop through both the Triangle and the lower channel supporting line.  We have had 1 hour candle closes below the support and may get a short rally retest, which if it fails to break back into a rally ought to signal a fast bear move.

 

[draa46]

Thanks for the analysis Mercury, I'm inclined to wait for retrace to your trend line resistance and look to getting short if it turns down. That may be too cautious of course but we'll see.

[Mercury]

NP, perfectly reasonable approach, just don't beat yourself up if it doesn't retrace and jump in at the wrong moment.  Got to wait for the next pull back, unless you are ok to wear a large drawdown.

[Mercury]

Just to position this post, similarly to my previous one, in terms of the big picture, I see the Oct 2018 as the top of the previous rally (just when Net COT was positive), forming an effective Flag or EWT 3-4 retrace (relief rally) but the long term trend is still down from the March 2012 highs for me.  I didn't catch the Oct 18 top and drop but I was ok with that because I was focused elsewhere and knew (yes knew) that there would be a EWT1-2 retrace (relief rally), which topped out April 25 with a failed retest of the weekly chart lower channel line.  At the time I thought there was a strong case for another leg up but with the recent price action break of the lower channel line the alternative scenario, that April was indeed the top, is confirmed for me.

So what now?  It is still possible there will be a rally and retest of the lower daily channel line but given the strength of the bearish move these past days that is unlikely.  The Daily chart is telling for me, a clear breakout of the recent rally channel.  So that is 2 channel breakouts to the Bearish side (1 weekly and 1 daily) with near perfect EWT forms and Fibonacci retrace rejections (50% and 38% respectively).  There was strong NMD at Purple 4 (weekly chart) and Pink 2 (Daily chart) and the hourly shows the strength of the move away from the breakout zone plus NMD at Green 2.  All in all this is a very Bearish set up, I am short off the 2 key support breaks with stops just above the daily channel.  I will be seeking to sell the rallies and am targeting a very large move down, a fresh low past $28 at least and maybe even a retest of the 1998 lows but that's all for much later.  For now I am content to seek fresh Short entries to pyramid this market, which could offer a very fast descent.

  

[Guest PandaFace]

I actually closed my oil long on the back of this post (along with some other analysis of course) so thanks for the trigger to re-evaluate. 

[Guest PandaFace]

talk about a whipsaw

[786Trader]

Interesting postulation. The big bear? Not quite so convinced.  For mostly obvious political reasons to do with supply and demand. Brent to $28? Not anytime soon.  WTI crude an unlikely maybe, but Brent ? I am wholly unconvinced. 

The markets are not over supplied. Demand is as strong as ever. Not to mention sanctions on Iran and Venezuela. Saudi will not continue to sell oil on the cheap, even if Trump tells them to,  though the Russians will with their current batch of chlorinated crude. 

A $28 Brent implies a Dow @18000 or less or vast reserves newly discovered. A market adjustment where the Dow rocks down to 20K late 2020 is a solid maybe, but oil? 

Graphics tell a story, but the giant big bear has not convinced me. 

Personally, I can see oil increasing through political tension and the strong possibility of actual conflict. The strait of Hormuz controls 30% of global supplies.  

Support at the $68 mark is considerable. 

 

 

[Mercury]

You may well be right @786Trader there are a lot of fundamentals based theories around so yours is as good as anyone's.  My hypothesis is not based on Oil fundamentals but can be summed up in 2 words:

Deflationary Depression.

Regarding the Dow, this attached is my long term view.

 

[Mercury]

Brent looks to have put in a small rally and bounced back off my alternative channel line, a parallel line off the previous low turning point.  This coincides with support line, now resistance.  The market is now heading down to the 6600/6550 key support zone.  A break here is very bearish in my book.  I have started to pyramid his market.

[Mercury]

That retrace didn't hold so now I am looking at a deeper A-B-C form retrace and a slightly amended alternative channel line plus a zone of support now turned resistance for the next line of defence against a bullish backlash.  I think I am right in saying that Brent Crude is open on Monday but as it is a bank holiday in both the UK and US volumes might be lighter than usual and strange things can happen when volume is light...

 

 

[Mercury]

Looks like we got a further retrace all the way to my alternative channel line for a failed retest.  Once the resistance zone was cleared this morning we got a fairly swift move away from the retest zone.  A break of the next level of support, and prior short term low, will be indicative of a longer term Bearish move for me.  Given the nature of Oil price action this one might never look back.

[Mercury]

Bit of a relief rally in play just now.  Nest stop prior resistance and then let the price action tel the tale.  I think we will see another rejection and fast move back down to break nest support but another test of the longer term resistance trend lines remains plausible so care is required.

[Mercury]

apologies appended the wrong chart.

 

[Mercury]

Excellent Retrace allowed me to get in with additional Short positions yesterday but I have cashed in the lower ones because I am anticipating a short term retrace (gotta fund the account!  And manage exposure risk!).  The market has entered a zone of significant long term support/resistance (see Weekly chart), which could provide the impetus for some relief rally action.  Obviously a breakthrough of this is significantly Bearish.  Also there is a price gap above, which I would expect to be closed.  There are therefore 2 retrace rally top targets: 1, the top of the Gap; 2, the next resistance zone.  At this stage I would not expect a carry back all the way to the Daily channel line but it is possible).

Looking at the Daily chart I believe I have resolved my channel conundrum (there were several strong candidates for positioning of lower channel lines as price moved down).  It looks to me like a classic parallel (equidistant) pair of channel lines (or 2 parallel channels if you prefer).  The first breakout was the critical one where we saw 3 failed lower channel line retests.  The second saw a capitulation of the Bulls with a breakout and retest.  Given this price action, and my related indicators, I now firmly believe Oil has entered the Bear market phase I was tracking since the wave 4 (or Flag) top back on 25 April.  I wasn't able to catch that top but I was ok with that because I knew there would be a significant retrace rally, which carried to about where I expected (circa Fib 62% and more importantly an exact hit and rejection retest of the Weekly chart lower channel line).  Now that I have confirmation of the turn my strategy is to pyramid my existing Shorts to the bottom.  So sell the rallies but don't get sucked into selling at the bottom of long drops is my mind set.  Patience to wait for rally tops is the key to not getting burned by FOMO.

[Guest PandaFace]

Avid reader of this thread. Thanks. 

Edit- need to reply to your other post! Will do so soon when not on mob.

Edited June 1, 2019 by PandaFace

[Mercury]

Early days but current price action may be setting up for a further retrace to close the recent price gap around the 6500 mark.  I would ideally like to see that and a turn back down to consider adding to my current crop of  Shorts.

[Mercury]

Actually there are 2 short term possibilities, the A-B-C I mentioned in my last post and another leg down before a rally.  That would make the recent short term rally a 3-4.  A completion of the whole 1-5 could trigger a Flag or Pennant relief rally.  A carry to the unclosed gap would be ideal.

[Mercury]

Brent has touched bottom of the support zone and rallied away with a nice pin bar price action o the Daily chart.  Not in and of itself a clear indicator but a pin bar is a sign of some Bullish support at that price level.  The market has been quite Bearish since the second channel breakout and Bearish chatter has been building to the point one would be forgiven for believing the only ways is down (and I believe it is long term).  However markets move in waves (zigzags) and I feel we are due a short rally.

On the Technicals front I have the following:

• an unclosed gap up around the Fib 62% level (see 1 hour chart for close up).  Actually there is another gap up at the Fib 76/78% level but normally I would not expect such a strong relief rally in a wave 3 but this is Oil so anything is possible...
• Stochastic and RSI over sold and momentum trending back up.
• Bottom of a strong long term support zone
• Short term PMD (1 Hour chart)
• Decent EWT count 1-5 down, now looking for an A-B-C retrace. 

Depending on the price action I will either look to add to my Shorts on a decent pull back and turn down and/or Short a break through of the recent lows.  Price action will decide which of these and where.  With a strong case for long term Bearish moves I feel fairly secure in Shorting but entry is vital to minimise draw down carry and exposure.  FOMO is you enemy here.  Longer term I am looking for an break below 5000 to cement the Bear market in and then it is a case of how far will it drop?

[gautamhait]

Get a chart of gold sir?

[Mercury]

Pleasingly, Brent is playing ball in terms of my projected road map.  This often doesn't happen on cue (well why would it?), being more a case of trial and error until it does trigger.  However in this case I am holding Short for the long term and looking to Pyramid so not trying to catch the rally, therefore I don't care so much where and when it happens so long as it does.  It is more about tracking the price action to ensure it is conforming to my long term set up, thus gaining confidence to both hold existing Short positions (all now stop protected at Break Even anyway so zero risk), and more crucially to add at the right moment.  For me trading (long term trading) is not just about catching a good move but managing the positions in flight until the trend changes or my scenario is no longer valid, based on price action.  Thereby I can maximise what I extract in profit from a good trend (crucial for the way I trade).  I prefer to actively manage a trend rather that use trailing stops, which can, in my experience, stop you out of a good long term trend too soon (fine if you want to swing but I do not swing a long term motive wave).  My long term prognosis for Oil remains that this market is heading South and in a big way.  If I am right about this the I want to stay in for the long haul.  The trick to doing this is to spot the relief rallies and protect or cash in near positions while holding earlier ones with stops well away from the potential retrace (rally in this case) tops.  The anatomy of motive waves (or trends) is quite recognisable in structure and repeats this stricture fairly consistently.  It is harder of course to spot the moves as they evolve in flight.

So to recap on my road map (see the beginning of this thread for details), I believe the market to be in a final wave 5 of a long term Bear market.  The big wave 3 is done and obvious on the Weekly/monthly chart.  I believe the rally off the Dec 2015 low ($27.40) to be a wave 4 retrace (or counter trend rally) and therefore the current bearish phase is the final wave, which will carry below the Dec 2015 level.  The turn and drop of the Wave 4 end (Oct 18) was a strong move consistent with a wave 1 and I am on record as expecting a strong counter trend rally once this completed, which we got to just short of the Fib 62% zone.  A small 1-2 set up the current move down (a wave 3).

There is an alternative scenario (as always), which is that the big move down to Dec 2015 was a very large counter trend bear (A-B-C) that is now over and the subsequent rally is a big wave 1 of a massive bull market that would carry back towards the previous all time highs.  This is not a scenario I find credible at this point.  However if this is correct then the current move will be counter trend (A-B-C) and the current bearish phase is a wave C, which would not carry beyond the 2015 low.  Either way we can expect the Bear move to continue for some time and to go some considerable distance.  All things being equal, if this retrace scenario is correct then I would expect it to carry at least to the 3800-4000 level (this is based on  basic A-C equivalence in EWT theory), so I will be watching the progression closely to see if the move looks like turning in this zone.  Otherwise I will stick with my lead scenario.

Assuming my lead scenario is the correct one then I would expect the current move to be a wave 3 of a 1-5 that should end with a large and possible reasonably lengthy (in terms of time) flag or pennant.  This current wave 3 should also show a smaller flag to mark the halfway point and this is what I think we may be seeing right now.  I think it will close the gap I have noted before turning to resume its Bearish course.  If it is a Pennant it will in all likelihood conform to an A-B-C form.  Flags and Pennants are periods of consolidation and are often comprised or a lot of whipsaw price action so I will be waiting for this to resolve and show itself clearly before being tempted back in.  If all of this is right then I would expect the wave 3 to carry down to the $45-47 area before we see another significant retrace, but that is all in the future, let's focus on spotting the rally turn to get Short with low exposure first.

So that is a lot to take in but in summary I think the market will rally to about $65, chance of $66, price action will tell the tale.  I am hoping to see a pennant or flag formation that will give me a breakout sell signal.  This will set up a move that may carry to the $45-47 area before another, much larger consolidation, the breakout of which would see a new lower low (i.e. lower than the Dec 2015 - $27.4 area).

The alternative scenario would see an earlier (larger) consolidation that signals a termination around about the $38-40 zone leading to a very strong Bull phase.

The key to this for me is not so much to fixate on these levels, they are guides only, but the form of the price action to identify signals and assess the Elliot waves in flight.

I will be looking to add to my shorts once I see a suitable retrace end and turn, if I somehow miss this I am holding several strong Shorts further up so quids in on those and I will wait for the next one.

[Mercury]

Looks like Brent has reached the zone I though might be a wave B after rejection in the first resistance zone with small scale NMD and a credible EWT count to signal the end.  Of course the retrace might have already ended and a break of the key support around 5925 or thereabouts would confirm this for me.  In the meantime the market is rallying off the Fib 76/78% related support and potentially setting up for a strong rally, quite possible aligned to FX pair rallies against the USD.  We may be in for a period of USD weak, Commodities rally (I'm specifically referring to industrial commodities like Oil and Copper rather than precious metals, which are also influenced by the Greed/Fear sentiment equation and their own intrinsic market player sentiment.

In addition to all that there was strong PMD at the recent bottom, which may still hold sway, and there are 3 price gaps above that could yet be closed before this market resumes it long term course down.

 

[Mercury]

So looks like the Wave A was a wave C retract top as the market puts in a lower low, albeit tiny just now.  Could be a double bottom with a rally to come but also could easily travel down to the next support level before putting in a hard rally, which I still think is on the cards, chiefly owing to the number of unclosed gaps.  The top most gap could very well be a breakaway gap as these tend to occur on breakouts but the other 2 feel to me like just regular gaps.

In terms of the case for another leg down then, the Daily chart shows the follows:

• A nice clean 1-4 (brown labels) that could terminate with a wave 3 Green (or pennant/Flag) and a strong counter trend rally that should take out the first two gaps before turning.
• A close of the previous rally unclosed gap before the wave 3 ends
• Note the retrace I have marked as 3-4 brown could also be a short pennant, which would suggest the bearish move continues to close to Pink 1 (circa 5000), however at this point I do not think so as it would leave too large a retrace to close the 2 gaps.

My strategy is to hold my longs above the  wave 2 (brown) breakout but wait for developments to reveal themselves and focus on other markets that are clearer and have greater potential.

 

[Guest PandaFace]

Pretty solid reversal with oilgrttingbid up at the moment “Kazakhstan supports extending a global output cut deal by OPEC and non-OPEC producers until the end of this year”

[Mercury]

The counter trend rally could be concluded, for now, but the further into this we go without a break through the 5000 support barrier the more complicated (convoluted even) the technical scenarios get.  For now it looks like a classic A-B-C retrace turned just after the second price gap was closed.  I remain a bit concerned about the final unclosed gap above (circa 6737) although you can only see it on the 1 hour chart so technically not a valid gap on the Daily, this distinction may turn out to be important.

Looking at my 1 hour chart I have a series of recent 3-4s that conclude the wave 1 (Blue) with PMD at the turn.  A-B (Brown) concluded with a 1-5 wave C up to 2 (Blue) turn at the price gap closure point and now a small 1-2 down off that resistance and break through a possible Consolidation Triangle formation.  IF this is sustained without another leg up a retest of the wave 1 (blue) support level (5900) is likely.

However, if we look at the Daily chart this is where things get more complicated as several scenarios are in play until a break of that long term support zone down at 5000 as follows:

1. Instead of blue 2 it could be a wave A (Red) that would lead to a B-C and a higher retrace, possible to close that 1 hour chart gap.
2. The above scenario could be extended to rise for another test of the Weekly Triangle line at 7800 - 8000 (i.e. the April turn was not the end of the counter trend rally and we are in a much larger A-B-C
3. Wave 1 Blue is not yet done and wont be until the unclosed gap at circa 5860 is closed, after which we will see a retrace rally (# 2 could still hold in this case)
4. Finally, the blue 1-2 is done and the market carries on down, with pace in a wave 3, to close that gap and break 5000

I favour #4 at present, but that may be because I am Short.  My analysis does lean towards a Bear breakdown so I will monitor price action to see if I can pick up clues to support that, chief will be a fast paced drop that is typical of wave 3s.  I will not be comfortable until that 5000 level is broken and we have a reinstatement of the Death Cross.  For now though I do see a short term bearish move so am content to hold Shorts unless or until the other scenarios present in price action.

 

[Mercury]

Weren't quite there yet after my previous post but this market looks to be at a pivotal point again today.

On the Daily chart I see an inside bar formation, which is a form of consolidation.  Typically a breakout of this formation is a trading signal, although like so much in trading it must be put into context.  As outlined in my previous post, the technicals are pointing to multiple scenarios so mote price action is needed to sort this out.  However one scenario is that a wave 2 (Blue) is competing with this inside bar price action.  If this becomes true then a Short on a downside breakout of the inside bar formation is a good trade.  If it turns out to be a Wave A we may get signals of that later and at a minimum can move stops to break even to protect the Short.  If the market breaks back into a rally quickly the exposure risk is minimal.  It is all about the percentages really.

On the 4 hour chart there is NMD and oscillator overbought signals that this is at least a wave A turn so some bearish moves are indicated.  There is are unclosed gaps both above and below current price, which further complicates the picture.

Not a clear trade by any stretch but if you want to play the percentage game then a Short could be a wave to ensure you get in on a potential wave 2 close and turn.

 

[Mercury]

Hello!  Just need to watch out for a fake breakout scenario but otherwise looks good for a Bearish run, for a while a least, and then we should start to get some more clarity on how the scenarios might play out.

 

[Mercury]

So that inside bar break was indeed a fakeout as the market rallied with a large gap on Sunday open.  That gap was almost inevitably filled quickly but what now?  Looking at the 4 hour chart we can see the whole rally enclosed by a Triangle (or narrowing channel) that could signify either a completed retrace OR a wave A or a larger retrace.  I am still bugged by that small unclosed gap up around the Fib 50% zone (circa 6740).  If we get a breakout of the Triangle before this gap is closed then I would favour a larger A-B-C but a rally to close the gap and then break the channel would fit better with a retrace conclusion.  There is currently strong NMD and price is one again testing that channel so the former is on the cards, currently.  I will not trade until this resolved.

[Mercury]

Getting close to key support levels now if Brent is going to put in a wave B turn.  Price has just bounced off the Fib 62%, not closed in the hourly candle yet, but just below is an unclosed gap and Fib 76/78% support level.  I like the lower fib levels for wave Bs but 62% is a typical level for many retraces so we are in the wave B zone now.  If the turn just below 6700 (without closing that gap above) was a wave 2 then the support levels should be taken out in short order as this would be a wave 3 (very strong).  Alas nothing is easy and one would expect a smaller 1-2 retrace before the wave 3 really gets going, which could look like a wave B turn...

Safest course of action is to wait for either a retrace to a fresh high wave 2 (blue) and gap close, perhaps with a retest of the breakout zone at 6830 or even a test of the Fib 62% at 6900 OR a new low below the wave 1 Blue (circa 5920).  Wave Bs are hardest to trade.

 

[Mercury]

Possible wave B concluded with a hit and rejection on the Fib 62% retest of the previous channel breakout zone on NMD.  A break of the smaller Triangle encompassing the current rally would confirm but the strength of the rejection is encouraging for another bearish leg to a wave 2 conclusion.

[Mercury]

Triangle breakout did occur but the market has retraced and is now retesting the lower Triangle line.  So far 1 test has failed and the second looks set to fail (still 10 mins or so to go on that).  A fail and drop here (and a break of ST support - fresh lows) will bring up the wave B scenario around about the Fib 78% (or a little lower perhaps).