I have made a few changes for crude oil, as I’m bringing back that a potential 4th wave bear market rally has completed. Since the 2016 bottom, wild swings and overlapping wave patterns seemed to have been normal for oils bullish run. Technically I have no problem in making this fit as a 4th wave bear market rally, but time will have the biggest impact if it turns out to be true.
All sorts of reasons are being used to justify the recent decline in oil, but what good are these reasons when they constantly change. Not too many experts follow the Commercial hedger’s Commitment of Trader reports but the ones that do I find are more believable. We are witnessing the results of a trade war where it gets to the point when the inventory of crude oil is piling up. Any news that inventory levels have dropped can send crude oil prices soaring. Even a 61% or more bearish correction may change my mind, but then I want to see a zigzag decline and not travel to new record lows.
This is just one COT report on Oil and the commercials show that they don’t see a huge bull market coming. Mind you the speculators most certainly do. Speculators follow the “Herd Theory” because once a small group turns bullish then all their buddies seen to jump in as well. This kind of action always puts the speculators in a trap, and in this case, they are in a bull trap.
The media reports the action of the large speculators as the smart money, which their not! I have notifications set up from Oilprice.com so this is about as real-time fundamental news as I can make it. It’s never about the stories but it’s all about the intensity of the news. If in one week only 2 oil bearish news article gets posted, but a month later there are 10 or more bearish news releases, then this has increased in intensity dramatically.
I would say this is one big reason why the oil price is crashing as the trade wars start to have an effect. Fear about Iran is also overblown as Iran can keep China well supplied.
The Gold/Oil ratio will give us a clues when crude oil becomes cheap again. Today it sat at 19.38:1, which is a bit cheaper in recent weeks but, not even close to being cheap when compared to the gold cash price. A real extreme low was 44:1 back in 2016, so the Gold/Oil ratio still has to spread a lot! Until some of these numbers change, I have to remain bearish towards oil.