One oil expert has declared that oil is in a bear market already! The oil rout became a bear market pretty quick. With all the oil bear market experts hitting the front pages of news blogs, I wonder if they will tell us that the next rally is a bear market rally or not? Close to a 3-year bullish phase sure had them convinced that oil was going much higher, but as usual, the markets seemed to behave the opposite of the herd! Every ridiculous extreme bullish oil price forecast was tossed around, yet what did the oil price do? It Crashed!
Since gold also crashed below short-term support, you would figure the Gold/Oil ratio would change. This morning the Gold/Oil ratio jumped back to a bit above 17:1, which still makes oil very expensive when compared to gold. This rapid change is nothing new, only that it’s hard to catch if you don’t take readings more frequently. When there is a fast move, then I use that event as a trigger to quickly take another Gold/Oil ratio reading.
What happened this morning, happened in 2014 as well, with the same ratio, just before crude oil prices imploded. That was a bit less than a 2-year crash when oil imploded from $105 down to about $28 USD.
There is a lot more crude oil downside that has to happen before we even get close when oil becomes cheap again. The only question is what pattern has the most likely chance of showing up to this bear party? I have to keep 2-3 versions active at the same time. Even Crammer got into the oil forecasting business as he says oil still could drop to $40 before we see good support.
The big question is if this decline produces a zigzag, so common in commodities, or a set of 5 waves continue to develop.
No amount of bullish jawboning will change the trend once it takes hold or resumes, so keeping an eye on the COT reports or the Gold/Oil ratio is a more objective look at the oil markets.