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Brent Crude rally ends, time for the big Bear!

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An interesting possibility occurred to me as I watched price action on Brent.  Could the retrace be a larger one that will run up to the Fib 62% resistance zone off the blue wave 2 turn?  There was PMD at the wave 1 (green) and again at the wave B (light blue).  The waves currently fit a complex retrace with each wave having an A-B-C form.  This is not synonymous with a motive (larger trend) direction or a trend change so at present I am leaning towards the larger retrace to about the $63 level rather than a longer motive rally.  A turn below the wave A (light blue) and drop below the wave B (light blue) may negate this but that doesn't seem on at present.

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I should have taken my £33 profit.  I waited greedily for more and ended up closing out with a loss.  Oh dear.

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Well I wouldn't be too worried about the loss of the profit @dmedin, you have to go with your thesis for the trade BUT the learning is maybe to consider as many of the alternative scenarios as you can and protect yourself accordingly.

Oil is in a consolidation phase right now and while I remain medium to long term bearish on Oil I am not sure we are quite ready for the next leg down.  That said I cannot rule out a total reversal in trend, or at least a more significant counter trend rally.  Oil seems to have been somewhat correlated with stock indices of late and if this continues, and as I am short term tactically bullish on stocks, then Oil may move up for a while.  Bottom line is I don't have a clear definitive view on the short term move on Oil and in such circumstances I will stay out of the market until things clear up.

I now have another alternative technical set up to my last post, which is that the consolidation is currently in a triangle form.  Therefore I would anticipate 3 potential scenarios as follows:

  1. Price continues in the Triangle until it breaks out to the downside and the long term bear continues
  2. Price breaks the Triangle to the upside and retests the channel line and then turns down into that bear move (as per my previous post).
  3. The market breaks up into either a trend change or a much stronger relief rally

I have laid these out in order of likelihood for me, although 1 & 2 are roughly tied in my opinion.  And sure you can say this is just, "it may go up or it may go down" but that is always the case.  The key for me is to have a road map laid out for each scenario and then monitor price action to see which scenario is winning out and then find the trading points to take advantage.  Unless you have a massive bank and can therefore tolerate large draw downs I can't see any other sensible way of trading long term swings (that is to say not day trading or scalping - no need for day traders to comment, their whole approach is materially different and I do not comment on that).

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Where's Brent Crude going?!!!

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Edited by dmedin

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Possible breakout of that 4H chart consolidation Triangle with a short term failed retest.  Will need to see an initial break through the 5747 support level to be more confident and then the next one at 5580, after which there is nothing much until the crucial 5000 level. 

Brent-4-hours_030919.thumb.png.a18471cfb4d8488abe3988f58e3b266c.png

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Possible breakout of that 4H chart consolidation Triangle with a short term failed retest.  Will need to see an initial break through the 5747 support level to be more confident and then the next one at 5580, after which there is nothing much until the crucial 5000 level. 

Brent-4-hours_030919.thumb.png.a18471cfb4d8488abe3988f58e3b266c.png

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Today Reuters was talking about how oil is 'bound to be range bound for the considerable future' ...

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It is certainly in a consolidation pattern but can't see it lasting much longer (famous last words).  Price had hit the upper triangle line and bounced back off it.  Good place to chance a Short, unless you think Oil is going to breakout to the upside that is.  

Brent-4-hours_040919.thumb.png.303d28e03dac53c67eaf25f7906197eb.png

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So looks like my original thought that the current move is a 1-2 retrace was correct.  The market has pushed up to make a higher high short term to get into the wave 2 territory and give us an A-B-C form so far.  I had a tentative resistance trend line (grey) on which the price hit and rebounded back down in a pin bar fashion.  This coincided with a zone of horizontal resistance, which in fairness is probably the more likely factor here.

Key question now is whether or not this was indeed a reversal end to the wave 2 or could we get another test of the blue channel line around the Fib 38% (underside).  One thing seems relevant to me, that monthly channel line, a parallel channel to the original rally channel, is being hugged on the shorter time frame charts.  Overall my long term set up still suggests further downside before any rally and I feel a test of the $50 level is coming.  A break of this level puts us firmly into a large scale A-B-C at a minimum but a further test around the $40 level could decide whether or not this is the right set up or will we see a much longer bearish phase back towards the 1998 lows.  Unthinkable?  The people who really know this market say there is too much supply.  Supply and demand is the key dynamic for long term direction on commodities.  Fracking seems to have changed the game far more fundamentally than originally thought.  Reserves previously thought all but exhausted now appear to be huge, much larger than the previous reservoirs.  The fundamentals for Oil do seem to be pointing to over supply and a shift to alternative energy sources long term.  If true that means increased supply and reduced demand.  All in the future that, the first questions still stands, have we seen a turn bearish or will there be another leg up; how common is that one..!

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Break through a ST support level and back below my monthly chart line (not particularly relevant at this point of course).  If this carries on and is confirmed then the pin bar was a reversal and we should see a test of the next support level around $56.  If that fails to hold then bring on $50.

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FX looks to have turned a corner and finally moved into that retrace rally, subject to a small retrace first, and precious metals looks to also have begun a retrace bearish move, perhaps to prime the pump for a much bigger rally to some but Oil has been dittering about a bit of late.  Stocks have yet to reveal whether the perma bears are right this time or the perma bulls will get their way in the perpetual bull bias (or not yet story) being peddled.  Overall I am interested in trading FX pairs against the USD and precious metals Short for the medium term (1-2 months) and staying out of stocks until thinks clarify as the whipsaw is too difficult to negotiate for non day traders.

But what is going on with Oil?  I have been thinking of the current move as a consolidation pending the next leg lower but there is another scenario that is consistent with my medium to long term view that Oil will go significantly lower.  The fundamentals I have explained before but basically people with far greater market knowledge about Oil than I have made clear arguments for declining demand while supply is, unbeknownst to the general population it seems, increasing with reserves also much larger than previously though.  I don't believe Oil will fall out of use or anything there are plenty of uses beyond power generation and vehicular fuel and anyway it will take many years yet for Oil to go the way of coal.  So in the next few years it seems that falling demand will play a part but over supply is the key factor and OPEC are powerless to address this now with the advent of fracking.  In the absence of a cartel control environment a more supply and demand competitor market is emerging, which is depressing prices.  Recession would put further pressure on price as demand falls off further due to lower economic output.

So much for the Fundamentals, if I look at the technicals then I have an adjusted set of parallel channels on the monthly/weekly chart, the lower of which has not yet been broken and in fact is offering support to price at present.  I want to see a break of this supporting channel line and a failed test of the 5000 horizontal support zone to get really  interested in my strong bearish scenarios.  On the daily I now see that the current rally conformed better to a 3-4 retrace rally with the larger, prior, retrace being a flag formation.  This would suggest a further rally phase to come to the Fib 38% or 50% levels off Pink 2 (4H chart) before a final drop to complete the wave 1 (blue), after which a wave 2 (blue) would be expected, maybe to a retest of the monthly channel line.  The thing is though, if we do see this pattern play out then the market is likely to be a a final wave 5 (Purple) all the way to retest 1998 lows rather than an A-B-C.  So the price action in the short to medium term will be very important to unpicking the scenarios.

My feeling is there is a lot to play out and it will take some time for the final road map to reveal itself.  Patience is the key for this.  In the meantime if we do see that rally to the Fib 50% and a turn there then I would be minded to go Short on the basis that even a failed test of the 5000 level would be a decent trade and the chance of a much further drop is reasonably high.  The first thing I want to achieve here is to figure out what the current move is and then that will help me make any trading decision.  For now I will stay out and watch the price action.

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21 hours ago, Mercury said:

The first thing I want to achieve here is to figure out what the current move is and then that will help me make any trading decision.  For now I will stay out and watch the price action.

Well, good luck.  There is never any way to 'know' which way price is going, unless you happen to be one of the insiders who have enough clout and connections to cause the market to move the way you want it to.

I am now starting to realize that all TA is utter garbage - basically the same as astrology or predicting people's destinies by studying the palms of their hands.  Price action 'might as well' be totally random.  It's completely unpredictable, hence 74% of idiots who bet on it get put over a barrel time and time again.

Edited by dmedin

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  Good luck with those 'tight stops' getting taken out over and over and over again 😉

 

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@dmedin

This is only a joke so please do not take seriously but why don’t you trade based on the opposite of what TA is telling you? You will then win 74% of the time. LOL. 😀

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Possible turning point activated on Brent Crude at the Fib 38%.  If this is a wave 4 (green) then the 38% is a good point for a turn.  On the 1H chart there is NMD at the turning point and an A-B-C EWT count.  Now have a small scale 1-2 that turned at the Fib 62%, again a classic point.  Seeking a break to a lower low to garner further support, although we can never rule out a retrace at that point alas.  Still a fast break into a wave 3 is what will really clinch it.

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Yeah that was the turning point alright and because it was at the Fib 38% and not the 50% I see it more as a 3-4 than a 1-2 so we may yet get that 1-2 (Blue) I referenced previously.  I am short off the turn and stop protected at BE so will let this play out.  First up is a test of the $56 zone and then the much more important $50 but here I might expect a hold and strong retrace before an eventual breakout.  That is all in the future though and we may see a bit of retrace price action before a solid assault on $50.

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That was a bit different.  Once the OMG moment is past I then reflected on 2 things:

  1. What does it mean in the context of my analysis?
  2. Are such shocks a sign of things to come?

With respect to #1, the move last night brings up my alternate scenario, which I had thought put to bed but that financial markets for you, markets like Oil in particular I would say.  Previously I had outlined that my wave 2 (pink) could be a wave A as part of a larger A-B-C and that now appears to be in play that could run up to the $80 mark in due course, unless the massive gap posted last night is closed quickly.  Given the move last night I might expect some consolidation that sees a dampening down in volatility until we get a breakout.  I will simply leave it alone for now and wait to see how price action develops.

As regards #2, when there is a shock development like that it almost always drives Oil up rather than down.  I suppose the only potential for a downward shock on Oil would be the discovery of a new massive oil reserve and how secret would that be really?  It also makes me think about other shock potential.  I would say that stocks tend to get shock down moves rather than up, opposite to oil.  FX gets more unexplained flash moves, we have seen this on GBP in recent times or something like an artificial peg get removed like we saw on the Swiss Franc vs the Euro some time ago.  I stay away from any such currency pairs, the Yuan (or  renminbi) springs to mind...  I have not done any research into this but it seems on a quick scan that shocks on FX tend not to go against the USD.  I guess Gold and Silver could go either way although I would probably expect to see gaps up rather than down on shock events.  If shock events are a thing we need to be more aware of, especially if we are coming to the end of a major Bull market in the backdrop of widespread social and political unrest (risk) then it makes sense to be mindful of this potential, especially for positions held over the weekend.

 

 

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