Oil in for a pull back?

[Mercury]

Well the Oil rally was indeed primed (see previous Oil thread) and it ran long and strong in a classic EWT wave 3 but the markets do not go in straight lines without a retrace and it looks like Oil may be due one.  The market has stalled at strong resistance and could be in for a retrace back to the Daily Fib 38% or 50% (this would be a retest of the down sloping tramline.

 

For my money this will be a retrace followed by a final leg up to maybe $55?  After than another strong move down.

 

 

[donaldprice]

As stated in USD Cad previously, always difficult to confirm this, however we could possibly have complete W5 of W3 and this would be confirmed at a break of the red channel.

[Mercury]

The confirmation will only come  when we see the retrace, as always price shows reality, analysis only shows possibility and within that possibility the analyst/traders has to decide on probability to take a trade.  2 options here, take a Short on the retrace or wait until the retrace bottoms out and go long  for the final wave up.  I guess the third option is to wait until the whole move up completes and then look for a short...  Wheels within wheels...

[donaldprice]

Could not agree more, with any analysis, it really is in my opinion building a nice clear picture and be able to discover as much evidence as possible to create a high probability trade. Nothing in life is ever guaranteed, therefore goes for trading, but as previous experience always shows the more evidence to support your theory you have the greater the chances of success. the option here would be to take a short or wait and take a long position, for long term trading, best wait for that pullback although both can seem appealing.

[MacD]

Hi ,  Got to agree with you guys a pullback is looking likely.

I know should wait for the turn but in this case that nice steady rise for the last week has tempted me to go for a strategy I've read about but never tried – “The 7 day extension fade"

So in the spirit of ‘nothing ventured nothing gained’ have take a small short at 4901 (US Crude)

(Fairly tight stop, mind :smileyhappy:) 

Mac

[Mercury]

Fair enough  as you say nothing ventured but you have to be OK to lose.  Re Stops, is yours above the recent high?  As a general rule I trade half my normal position size on a retrace to reduce risk and exit early so that I am mentally focused on catching the next motive wave turn.

[MacD]

Cheers  I've put a stop in a little bit above the recent high of 4930.

I've gone for 4970 Which is within my comfort zone for a loss - and I reckon if it hits that it'll keep on going.

My target is around 4600 where we should be near the 12 day EMA but will keep an eye on the price and may adjust my strategy accordingly.

I plan to move my stop to B/E if it gets to 4800.

Of course this may all be moot if it just flies away and hits the stop. :smileyvery-happy:

But you have to have a plan and time will tell whether this one is any good.

 

[Mercury]

Ah, you are trading WTI rather than Brent?  That's why I didn't recognise the numbers.

[MacD]

Ah,  Yes WTI  I see how that could be confusing when you started the thread talking about Brent. Sorry about that.

To be honest, I don't usually look at Brent. I put WTI on my watchlist when I first started because that's the one IG's oil trading signals were given for and I've just kept on using WTI since then.

(Even though I rarely take much notice of the IG signals anymore :smileyvery-happy:)

[Mercury]

Doesn't much matter which of them you trade.  Main watch out is that they can be very spikey and fast moving in reversal.  I typically tend to only trade Oil at major turning points and/or early in a trend as it is prone to odd wild swings.

[Mercury]

Oil is bothering me.  The whole move up and the turn on 9 June just doesn't fit for me.  I have had the same long term analysis set up for ages so decided to look at that again and have come up with something different...

 

Looking at the Weekly chart most EWT people think the 12 Jan 2015 low was a large time frame Wave 3 retrace up to Wave 4 but what if this move was a Pennant?  This would suggest the Wave 3 was not done until Jan 2016.  If you take this view then the current retrace makes more sense to me, a strong Wave A , shallowish Wave B and now in a strong Wave C.  Such a move could run all the way to the Pennant break (i.e. $63) or even the Fib 38% ($65.50).

 

Looking at the Daily and 4 Hourly the Wave B move down was in a Flag formation and the break could be retested at either the tramline or the break point resistance zone.  For such a move to happen it is likely that the whole move up so far has been EWT1-3 (green labels) requiring a small 4-5 to complete and then a further stronger retrace back to Blue 2 and that Flag retest.

 

BTW, if the Weekly chart Pennant is proved correct and a Pennant often occurs half way along the trend then this trend ends at, well zero!  This is not as ludicrous as it may seem.  There has been a lot of coverage of credible alternatives to Oil and Oil is anyway running out so one of those 2 scenarios should result in Oil zero right...?

 



[donaldprice]

Although I would not dispute any idea when the technical and some fundamentals are added to the mix, but oil without doubt is being treated at the moment as if their is no tomorrow and that their is enough surplus until the next millennium, unfortunately the max seems 100 years. The Middle east namely the Saudies should really give up on the idea of trying to punish or gain market control over the shale producers as well as other oil producing companies and realise America is now energy self-sufficient and enough shale to further fuel the economy as it is needed. In-fact their is even suggested reports that 1-80 jobs in the US since 2008 are now in the solar energy sector, therefore renewables is on the agenda and the Saudis know this, hence why they have been heavily diversifying their portfolio. I might also add that America is also now in its infant stages exporting liquefied gas (LNG) and could be the 3rd biggest suppliers. But this all goes in cycles during the 70s the US was heavily producing oil, then declined and then everyone got very uncomfortable with the middle east's influence in the oil market, now we could sooner or later have the tables turned and OPEC becomes the declining influence. History always repeats itself because human psychology/economics never changes.

In terms of the technical's, as you say, because we had 5waves up and a double zigzag or WB almost 2 weeks ago and now W3 that theory could easily fit if it terminates their and heads sharply lower, but if it only retraces 38% and then heads higher than we know that this is a continuation, but this is medium term which quite frankly i would not be to interested in, only for guidance. Also were that to be an ABC, should not WA = a similar length of WC, if it where to be a 1-5 normal impulse uptrend then W3 would at least be longest. In summary this has captured my curiosity but i myself would want to investigate this further but either way its worth pocketing both scenarios.

[Mercury]

Oil is one market that doesn't interest me in terms of the fundamentals  because there are too few very large players they can influence the market short term contrary to fundamentals and also you get many wildly varying theories on Oil.  I am interested in the notion of "Max Oil" that oil will eventually run out because we are using it faster than nature can replenish it AND the ability of humanity to come up with alternatives in time to avoid Armageddon...

 

But from a purely market trading point of view I only rely on technicals for this market and try to only trade major turns.  The whiplash effect is too great for short term trading on Oil in my view.

 

WRT to your points on the technical analysis, I am not quite clear on your point re W3 and retrace to Fib 38%.  My thinking is that so far we are in W1 (Blue labels) possible W3 of W1 (Green labels) and so any retrace would be a natural 1-5 of a wave C and not a continuation signal (i.e. a Pennant or Flag), unless you are just saying the 1-2 retrace is a continuation off the 1-5 wave?

 

Regarding the Wave A Wave C equivalence, I assume you are talking about the whole Daily chart move.  The 1:1 relationship is allegedly common but the theory also allows for 1:0.618 and 1:1.618.  Based on my observations I do not place much store in this ratio at all.  Having said that if a 1:1 relationship did prove true then the Wave C would top out about at about 6730, just above the Weekly Fib 38% and in my major resistance zone (so possible).  A 1:0.618 ration would be about 5700 (top of my first resistance zone and possible junction with the lower daily tram line (so again possible).

 

First things first though, I would need to see that Blue EWT 1-2 retrace and rally and only then get interested in where it might top out.  A potential pull back and retest of the Flag would result in a Fib 50-62% retrace from the Wave B bottom, which is a strong likelihood retrace level.  The additional thing is that USDCAD is shaping up with a similar profile (in negative).

 

Final point is that the market was predominately Bearish prior to the Wave B turn so going Long there, as I did, was the classic contrarian move.  So far subsequent price action is consistent with my medium term road map, I believe we are in Wave C and will experience a 50% minimum retrace soon before a strong rally towards the Weekly time frame Fib 38% (6500ish)

[donaldprice]

As with all retracements, one must always question "have we seen the end of this move"? My opinion is no, that we need to await the rest of the C wave of the ABC retracement to unfold 4700 level, of which then might be good to set a nice entry.

[Mercury]

Agree  but Oil is a capricious market.  I am disinclined to trade such moves, preferring to await more definite trend changes (hard to spot alas).  I would consider a Long on a retest of the previous Flag formation or associated Support levels but until then there are more interesting and less risk markets out there.

 

 

[donaldprice]

True Mercury, seems, that on the hourly we have some sort of support on the T-line, I don't wish to play this right now, especially with upcoming US data and this Jackson hole also on the cards. I do often question if we will see any rate hike this year, especially with inflation not reaching close to its 2% target, and from what I remember from my old school economic theory, rates should only be hiked to control inflation, but it appears that they want some insurance policy of not wanting to be caught on the wrong side, if unforeseen events. Makes you wonder, why was the same attitude not taken before 2008, that was very preventable, but that is where behavioural economics seems to come in. I might also add, that if oil does not hold above 50 by the end of the year, then chances of a rate hike could be further diminished, but seems that their is always an excuse so far and central bankers are trained very well to say a lot without saying anything relevant lol

[Mercury]

Tru Dat  which is why I do not pay any attention to central bankers anymore, except to be aware of when their next utterance is due out so I can protect my portfolio of trades against short term volatility whiplash.  If ever there was a time to forget about central bank actions and fundamentals and focus on technicals it is now.  Commodities, especially Oil, do impact inflation but remarkably the CBs and economists in the pay of the government and big banks seem to have conveniently overlooked that in their policy setting.  The narrative that economies are in recovery as a result of CB policy is a farce, not borne out by the facts on the ground (real economy or "Main Street").  The commodity crash is a harbinger of depression, which cannot be headed off by interest rate manipulation as we have seen with the lack of results from ZIRP and NIRP.  How much longer does the failed experiment have to go on before they get it?  Answer: they never will get it until the markets force them to and by then it will be too late.

 

The debate over rate increases is solely due to the fact that CBs traditionally fail to call the return of inflation and act to late resulting in a spike and associated calls for their heads on a pike.  The reality is that they cannot raise rates while all about them are still lowering them.  The last refuge would be helicopter money but that brings with it the risk (I would say certainty) of hyper inflation (for me this is worse than depression!).

 

With respect to Oil, I don't believe it is much impacted by CB policy.  The notion of commodities being impacted by the USD value vs other currencies is valid but not all the time and not now I believe plus you would need a sustained USD rally to produce an impact.  As it happens I believe this will happen but not because of a rate rise but because of a flight to safety, which will ironically fuel depression as commodities also plummet...

 

In the short term I foresee this retrace concluding with a rally and then the big fall begins and there is not a **** thing the Fed can do about it...

[donaldprice]

Absolutely Mercury, governments do have a responsibility to not act so recklessly and each time central bankers like those in japan and Europe and unleash more rounds of QE and cut in interest rates, it just demonstrates their weakness even further. Now with more serious talks of helicopter money to tackle deflation, it proves to the market that central bankers do have serious limits, and this is why fiscal stimulus is a priority, but will this happen, probably not, until its too late. What is however keeping a lot of these companies and countries for that matter still going is the what appears to be an endless supply of cheap credit. Credit availability was a major factor during 2008, and this was very much welcomed, but the timing of this was crucial, the US and UK did take prompt action, while everyone else was in denial and then decide to act when its too late. The other problem of cheap credit is that companies such as Glencore and Angloamerican and of course many, many others should have gone bankrupt, to allow for creative destruction to take place within the commodity chains. The 4 principles of creative destruction are prosperity, recession, depression and revival. However, because their has not been any serious liquidity tightening, of which presumably that is what the FED want, but is this politically possible?, especially within a globalised market. The question is, will jobs be replaced if we allow creative destruction to happen?, this is what people fear. I might finally add that during the commodity crash, we saw something that we often see during periods of crisis, in that companies implement mass austerity measures on themselves and capitalise on present and future innovations such as robotics, now lets say this cycle is supposedly over, which I have some doubts, but if? why should companies now claw back on the crisis measures, why not keep them?. Don't they also suspect that liquidity tightening could be on the horizon?

In summary as you say, governments are trying to prevent normal yet unwelcoming economic theory to take place and we need to seriously wake up to reality and allow nature to take its course and stop creating more so called zombie companies and countries like Greece by continuing  QE life support, question is, who will pull the plug first.

[Mercury]

There will be many books written about these time.  In a way we are fortunate to be witnesses this time.  I remember the post 1980s recession but was too young to observe the factors leading up to it.  I am reminded of the sheer arrogant hubris of Gordon Brown declaring that the Labour party had changed the course of economic history - "no return to Tory boom and bust" he said and then there was a bust!  The markets and the economy have a way of taking care of such hubris as Yellen, Kurado, Draghi and Carney will discover and their political task masters.  Until then we have to be patient and carefully mange our risk and protect ourselves and families against the worst of the impending carnage.  The real problem is that no one wants to hear it, talk about cognitive dissonance...

 

The attached You Tube clip is too funny!

 

 

 

 

[donaldprice]

Lol, who could resist the man who thought he abolished boom and bust, looking back at this I remember well how house prices skyrocketed from the very late 90s to 2008 and how nobody in the central banks saw this bubble coming is beyond belief, and during Jan-Feb 2016 almost everyone was predicting huge drama. Economics is fine in theory, but in practice behavioural economics dominates as irrational emotions seem to be the big players.  

[donaldprice]

Oil on Friday, refused to break above the 78.5% level, at the 5097 level, therefore that seems to me a W-b therefore W-c needs to be completed, possibly the 38% level, be interesting to watch, before continuation of the trend. Also I have attached a link of Iraq suggesting that it has yet to reach optimal output, therefore this may add to some momentum to the W-C mentioned above. (reuters report, 1800pm Saturday 27/08)  http://uk.reuters.com/article/uk-iraq-opec-idUKKCN1120C3?il=0

 

[Mercury]

If you look back to the opening post of this thread you will seen the road map I had outlined and so far the first leg is done but will the second come to pass?  If it does a turn back up looks imminent now with price hitting the upper Flag line and 62% Fib.

 

 

[Guest DemiGod]

Agreed that oil is holding support at the moment.

[Mercury]

I am wondering if this market is going to head back down and put in another Flag line touch in a classic A-B-C before motoring on again?  I expect to see a rally early next week and if this fails to make new highs but turns back down I will see this as a wave C back down to the Flag line area before a powerful rally up in wave 3.

 

My medium term prognosis is that we will see Brent at or near $60 before a resumption of the Bear.  Best trading opportunity I see on the chart is Long near 4,400, which is at a Fib 76%, the flag line and support zone.  This will be especially compelling if the current move does indeed go down in a 1-5 form.

 

As a watch out there is a strong argument for an A-B-C retrace completion at my point A(green), on the Fib 62% and it is only the sharp decline of Friday that has given me pause to consider an alternative view.  Therefore a break back up in a strong rally would realign with this original view that the wave 3 rally has already started.

 



[donaldprice]

Hi Mercury, cheers for the replies earlier on and glad we both share the similarities. I do like the current analysis on oil.

What I appear to be seeing is currently an ABC regular flat, which really does seem to be fitting very nicely. Therefore we should see 1-5 W down to complete our 3-3-5 pattern. The tramline does offer a nice fib level to watch. Although I often find that tramlines work better when not drawn on specific corrections, only in Waves 1, 3, 5, A & C. It might be I am just not very good at T-lines or put too much effort using geometric angles, but regardless EWT will be my guide along with the occasional RSI/ momentum oscillators. 

I overall have heard some commentary supporting the view that we could be seeing in the medium term an ABC pattern, but this would be confirmed through future price action.

 

[Mercury]

I have found it true that tramline pairs drawn on retraces are less reliable than on motive waves too  however the pair I have drawn on the Oil chart is a Flag formation rather than a traditional tramline pair, similar to a pennant formation or Triangle in nature.  With respect to EWT I do not tend to try and identify whether a retrace is a flat or regular etc and certainly not on the lower time frames.  I do like to identify complex retraces on the Daily in an extended retrace but other than that I really only use EWT as a road map guideline rather than a trade identification tool because there are too many variables in terms of EWT count positioning and formation.  I also prefer to use Daily and hourly rather than 4 hourly, using the 4 hourly only to lift up out of hourly nearsightedness and if the move is too extended for the hourly chart to show the complete move on screen.

 

That said if you are getting a similar answer with a different method then that is encouraging.  Currently we are seeing further declines on Oil, which fits my road map so far.  It may be that the small 1-2 is already in and we simply get a strong move down towards the Flag or another suitable turning point back up for a rally.

[donaldprice]

As stated in USD CAD today was really short covering therefore this was much of a scalping day for me (prefer long-term trades normally), on this one it seems that we may almost be their with the short-selling before heading higher which would be in time for the OPEC meeting, which I do suspect that it may be different this time, but I would not bet on this long term, that's for sure as this could easily still be an ABC, and with the rise of alkaline batteries and transport costs and energy needs being replaced by different sources of energy OPEC will have seen its glory days well and truly over. If you want to blame economies not reaching their inflation targets OPEC would be a key player in this cause.

Therefore W-5 should now start possibly to the 0.78% level before head up.



 

[donaldprice]

As with oil, it seems that we still have some to go in the very short term before we have our rally that we are waiting for. Therefore all eyes 4449 level, although a small short might be worth the move very soon, for those looking for the long move, best to sit on the side lines, at least for me at the present. Any different ideas please share of course.



[Mercury]

I think Oil will have to break the upper resistance zone to be a decent Long bet and I would be more comfortable shorting USDCAD if Oil is rallying.  Right now Oil seems to be retracing back down, maybe behind Fed rate nervousness and of course EIA stocks data due out a bit later.  Another run back down to he Support zone could offer a decent opportunity.

 

 

 

[donaldprice]

Looking at oil, it has been difficult to determine if we are in a zigzag or a triangle on the 4 hourly  chart. Therefore because i like to have 2 possible scenarios as part of my risk management, i explain the following on the chart below. So in terms of technicals and excluding what the OPEC meeting between Monday and Wednesday goes about i see the following:

I am confident so far that the previous strong rally from early august is W1. Now from their on we could potentially have 2 scenarios. Of which i think right now are both probable. The first is labelled in purple for the zigzag. If we break the support at the 4530 level then this could validate the whole zigzag approach and possibly terminate around 4375. 

Now here is the alternative approach and that is we are in a possible triangle. If so we could be staring W-D only if we reject the 4578/0.886% fib level as outlined in the white shade of the chart. Bear in mind that if we have started W3 already then at present we could also be in W2 as of friday late and head higher, if!! it bounces from the current 88%fib level as highlighted in the white shade. 

In terms of long term if the whole picture suggest an ABC approach the $68:78 will be a level to watch, which is the previous weekly resistance.

Fundamentals: It all seems that IRAN holds the cards at present, we know Libya and Nigeria wont cap. According to the FT source, 700K to 1M per day needs to be removed from the market in order to make a significant difference in the oversupply. Of course their serious doubts that Iran will cut production and therefore the Saudi arabia will not budge either. However the autumn months will help bring down inventories ever so slightly.  

My approach to this would be to trade this by process of elimination on the W-count, although any messages from OPEC could trigger all types of wild swings, so trade extremely diligently.