Since early March oil has been on a real bullish roll that could be coming to an end shortly. Many of the fundamental news releases tell us how bullish analysts still are. How can oil crash with inventory levels fluctuating constantly? The same thing happen just before the 2008 peak in oil, when every expert in the world was proclaiming that new record highs are on their way, but yet the oil market tanked and in just 8 months, the world was in another oil glut! Oil not only crashed once, but it crashed again when experts were claiming that oil would never go below $100. How long did that expert opinion last? The next thing we know another world glut has arrived at the $28 price level, before it charged back up to the +$65 price range.
I had mentioned it many times that the $60 price level could give oil some serious price resistance, with a present price of $67. Since the April 6th bottom crude oil executed a wild run that sure seems like it is starting to fizzle out. In the last 2-3 days oil has been forming what looks like a rising wedge, which can and do produce amazing reversals once they get close to completing. In this case the wedge is a Micro degree wedge which in this case we can call an ending diagonal. Diagonals can take up the entire 5th wave, so any diagonal in any 5th wave forecasts a reversal. Any 5th wave peak must also be capped with a one degree higher wave count. We should “never” see 5th wave peaks left empty anywhere on the Internet.
At a minimum I always like to confirm a move with two lesser degrees and sometimes even three depending on physical size. To confirm a 5th wave decline in Intermediate degree, I “must” see Minor and Minute degree subdivisions and occasionally a third degree will help.
Many are calling for $70 oil, but where were they when oil tanked to $28 at the 2016 bottom?
The Gold/Oil ratio has bounced from an extreme ratio of 44:1 and in the last three months it has been sitting at an average of 21:1. This morning oil dropped to the 19.92:1 range, which was a small, fast dip that have preceded reversals before. When the ratio is hitting a brick wall so to speak, this means that something is up as that is what also happened with all my stock index ratios. This Gold/Oil ratio should start to spread again as oil declines, and until those numbers change dramatically, I will remain bearish on oil. Crashes in commodities can happen extremely fast, as oil clearly has demonstrated in the past many times.
Crude oil also has a huge Cycle degree wedge in progress which could usher in a big Primary degree move in the future. Five waves up in Primary degree would work for me. 🙄 I have incorporated solar cycle wave analysis into EW5 and at this time crude oil prices should still be attracted to the start of solar cycle #25. Oil did exactly that with the late 2008 crash and the start of solar cycle #24.
As I post crude oil is heading down, so that’s a good thing!
The decline of the US dollar has been in progress just under 13 months and I’m sure there is more to go, but short term radical moves can kill any wave count pretty quick. The 4th wave peak in Intermediate degree is still holding, and I see no short term moves that will dislodge it. This blog is all about locating, and confirming all 5 waves in Cycle degree, and EW5 is the only blog I know of that is doing this. I say this so all new readers fully understand that smaller degree wave counting must come before all the big wave counts can be justified or even confirmed. This also applies to currencies like the US dollar.
At this time I don’t think we are in any Minor degree just yet as the switch would have to counter rally much further. In this case the USD could be finishing a Minuette degree 4th wave, which could be followed by a 5th wave extension. International trade wars are in progress, but I think it’s more about Cyber Wars that all major nations are conducting. The US dollar is caught in the cross hairs as it seems that the USA infrastructure is also a prime target for these attacks.
We can get all sorts of rallies, but none of them will charge back into a bull market., at least until all the commercials are net long by a very wide margin.
We also have to be prepared that the US dollar can soar when stocks make a huge counter rally. COT reports come out on Fridays and if there is a radical change I will talk about it.
The Euro could also see a pop so when the US dollar moves many other currencies will also react.
End of the week, new moon, Friday 13th and a rising wedge doesn’t help in reinforcing a bullish outlook. This week the markets struggled trying to make headway and the rising wedge shows it. This may only be a Minute degree wedge, but there are Cycle degree wedges as well. When a falling Wedge develops, then this can turn into a very bullish reversal. Of course, if we abuse these wedges, then they lose their importance and meaning. Most of the Wedges are bear market related so any Cycle degree wave 3 top to a Cycle degree wave 4 bottom would be a Cycle degree Wedge. Just about every crash in history showed one type of a wedge. The 1937 to 1942 Cycle degree wedge is a prime example what large degree wedges can do.
The initial rally that started last week can be counted as a wave 1 but this is also a typical “A” wave move in zigzags. So far the high peak could contain an expanded flat so I will have to flip back and forth between two patterns until the bigger pattern becomes more clear. As rough as some patterns are when starting out, they do have a tendency to clear up after a while.
When the markets have crossed the line from a bull market to a “huge” bearish phase traders have to change all their thinking instantly. Obviously we are far from that situation as market bulls have just called a market correction bottom. Just goes to show that the majority of experts still think they are on the bullish side of this market.
In a bear market good news no longer pushes the markets to new record highs, the opposite happens at the end of a bearish move when bearish market news no longer pushes markets lower. With small counter rallies, this is much harder to detect, but if we are not looking then it makes little difference, as we would be in another bear trap.