Daily Archives: June 11, 2017

Russell 2000 2015-2017 Daily Chart Review

The Russell 2000 has given us one wild ride which most analysts ignore most of the time. Recently the Russell 2000 has led in the downhill race, but quickly turned and played catch up, soaring to new record highs again. What is different with this top is that the pattern is very choppy, followed by another very choppy run, which sure can count out as an ending diagonal. 

The 4th wave in Intermediate degree sure can work as a zigzag which was then followed by what looks like a set of 5 bullish waves. Well, these can also work as one single zigzag, with a stretched “C” wave in Minor degree.  This has been pretty normal on most indices, except for the Nasdaq, which has been closer to an impulse pattern, than all the other major stock markets. 

The Russell 2000 also has several major bottoms that could provide us with an early warning wave count, for a future Cycle degree 4th wave bottom.  No! We are not some super duper mega crazy SC or even GSC degree wave top as those wave counts are all based on 5th wave extensions, and not wave 3 extensions. Wave 3 extensions come from a wave 2 base which I started to switch to in 2013. 

There is no way of knowing for sure,  if this top will hold.  The prospect of an ending diagonal sure can change things in a hurry. 

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Crude Oil Daily Chart

This chart is the August crude oil contract which I can use for several months before I have to jump another two months ahead. Most expire the last Thursday of the contract month, but I like to switch well before these dates and use the future month that has the most activity. 

There are major differences between charts as cash charts don’t work on the intraday scale, and line type charts will create different bottoms and different prices. This has been very problematic as we can get different wave counts. Many have started this bullish phase with “W, X, Y” waves which just goes to show that other wave analysts are having problems as well. 

I make it a strict rule that the first ” W” wave must always be a zigzag, because if it’s a flat, then chances are extremely high that it is part of a diagonal. Diagonal waves are everywhere and they are single moves that belong to the 5 wave family. Diagonals are not 3 waves, but they have at least 3 zigzags connected together, and waves 2 and 4 can contain any type of flat or even another zigzag. Triangles could appear in the 4th waves, as triangles can develop just before the end of a run.

All this makes oil very difficult to read most of the time,  as overlapping waves destroy any pure impulse wave structures.

In the long run, it will clear up some, but it is important to know if oil is in a bigger bullish phase, or just another short term bear market rally!

The bearish oil news picked up recently, as bullish investors are starting to give up hope and are questioning this bull market. Of course the fundamental stories of the return of the world oil glut has them really worried. We can go back to the 1980’s and in the middle of every world oil glut, the oil price started a major bear rally, or a major bull market.

The most impressive world “glut” spawned bull market, started in late 1999, when oil soared from around $10 to $147. Before we know what happened, the majority of world experts proclaimed a world oil shortage. Peak Oil was the rage, and price forecasts for $200-$300 or more were very common. Just when all the consensus forecasts were singing the same tune, the oil price crashes and within 8 months we were back in a world oil glut around the $34 price level. 

I have used the 4th wave in intermediate degree as my major bottom, which opens up a few extra patterns that I can expect, for the longer term.   I use an “A” wave top in Minor degree, which is about the same as any wave 1 that we could get. One wave count can serve double duty until one of them is eliminated.

When we reach any “C” wave top, then we have to take some contrarian readings to figure out if oil is very expensive or not.

Crude oil is so close to breaking another wave count, where it can go lower in the short term. Longer term I’m very bullish, and if the 4th wave bottom is true, then we could see a major double top in our future. With oil we could end up with a single zigzag doing all the heavy lifting, as for gold could see a set of 5 choppy waves.

I would love to have a better wave count at this time, but we are getting close to building another H&S base, with a triple bottom at the $44 price level.

At this time the Gold/Oil ratio has been fluctuating around that 27:1 ratio, which is not an extreme either way. The bigger this ratio number gets, the cheaper oil is becoming. When we see oil at the 20:1 or smaller ratio, then oil is getting more expensive when compared to gold and we should wake up and take notice.

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