This is the crude oil cash chart, with monthly chart settings. None of it is labeled, but I wanted to highlight the move from the early 2016 bottom to our present March 2018 top. Last week, crude oil did break to a new record high, but only by about 50 cents so far. This makes for a potential finish to a diagonal 5th wave zigzag at about $65.74. The correction that oil gave us from mid 2010 to mid 2011 is best described as an expanded running flat in Minor degree. No, it’s not a fancy new breed of patterns that has been born, because I have been using it for some time already.
Oil sure can go a bit higher early next week, but all I can say is that a true inverted zigzag, that is ending with a “C” wave, is usually a big bear market rally. (Fake Bull market) The wave 3-4 as Intermediate degree, can only happen once it’s past a Cycle degree top. 2008 can be wave 3 in Cycle degree and we are going to finish a bigger bear market that has been going on for close to 10 years. The real big bear rally that ended in 2013 was completely retraced, so I don’t see why a much shorter 4th wave bearish rally cannot retrace by 100% as well.
In this case, crude oil could be finishing the 4th wave in Intermediate degree and a big reversal should start to happen. Another crude oil zigzag heading down can develop, and it would help to confirm the diagonal wave structure at the same time. Crude oil has a very strong history in displaying fast unexpected long crashes that can stun all the crude oil bulls.
Even with the wild moves we’ve had the Gold/Oil ratio has not dramatically change, but it is having great difficulty in continuing to compress. ( More expensive) The Gold/Oil ratio is about 20.47:1 and it seems to be running into road blocks at this time. The ratio is not at an expensive extreme at this time, but it sure has been hitting a brick wall for many months already! A great oil decline will certainly start expanding that ratio again. A 5th wave decline could produce another glut as oil is more profitable to store when it becomes cheap. Oil traders make no money if they are storing expensive crude oil, but they sure find lots of storage room when oil is cheap. Filling up all the available super oil tankers seems to be one of their favorite tricks.
Any bear market rally with oil can retrace that $28 low and even head to $21 a barrel. The solar cycle has a lot to do with the price of crude oil as the 2008 crash ended when solar cycle #24 was about to start. The oil price can crash right along with the general markets like it did during most of 2008.
This oil price is about the same as the June contract price, which tells me there are no real crude oil upward price pressures at this time. Now if the June or even December futures, were priced $2-$3 more, I then would remain very bullish on oil.
I had this oil chart made up as well, which is the June contract that I am using until early June, after which I will jump to the Decemeber contracted. They are both very busy contracts months and I will not need to switch back and forth. Price wise there is only a small difference between the December contract and the cash contract. For a very bullish outlook, we would like to see the future months to be higher in price, not lower or even even.
This oil chart is another prime example of what analysts can call a conventional “Bull Market”. From an Elliott Wave perspective, the real bullish phase ended in mid 2008, until the early 2009 bottom. The rally into the 2011-2013 top was the peak of one bear rally, which was confirmed with the huge crash ending in late 2015. Of course, another glut ensued, which supply and demand freaks watch like a hawk. For traders it makes no economic sense to store expensive oil, so inventories are allowed to go down.
In little over two years, our present rally is still going, but we could be running on empty with the oil price starting to ram into a potential wall of resistance from the 2006 correction. Even if we end up at $70 oil it would not change the angle of our present, “Wedge”. I like to call them Scalene triangles and once the charts get forced into the cone, all hell can break loose. These triangles are not much different then any Megaphone pattern we can draw up, as all three of them are actually the same patterns.
We had an “expanded running flat” correction, just before oil soared with a “C” wave bull market. Running flats, are regular patterns which some call “Truncated” or shortened. Sooner or later, another crude oil, bearish phase will ensue and it could take several years before we see another major bullish phase being set-up.