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Has the Oil rally peaked?


Mercury

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As goes Oil so goes the stock markets, seems to be the order off the day at present so I guess some clarity on Oil would be great.

 

FWIW I think the top of this rally will be between 4500-4590 (Brent Crude), why?

 

On the Daily chart I have 3 near term scenarios:

  1. A-B-C about to complete the wave C then a final big drop begins
  2. 1-5 about to complete and then retrace into an A-B-C (that would be a larger scale A-B-C, about to complete Wa then back up to Wc before a final big drop).
  3. 1-3 about to complete W3 then retrace to W4 and on to complete the larger scale 1-5 up (i.e. we have seen bottom of Oil)

Those familiar with EW theory will notice that in all 4 scenarios a drop back is indicated.  It has been a strong rally so a retrace is due and the rally has been driven mostly by rumours of deals and a spurious oil stocks reading last week and I for one back the buy the rumour sell the fact maxim on this one - I can't see a deal of any consequence coming out of Sunday's meeting.

 

But where will it turn?  My view is it will turn before Monday/Sunday night and quite likely tomorrow.

 

Looking at the Hourly chart this final move up has been in a clear 1-5 motion (we are in the W5 now, in the final leg that is also showing a 1-5 internal pattern, albeit squashed as the sell pressure and doubt creeps in).  In addition, on both Daily and Hourly charts there is strong Negative Momentum Divergence plus Stochastic and RSI divergence and well into over bought territory.

 

There is a congestion zone between 4550 and 4590, made by the big turn last in Jan 2015 (4527) and a series of mini tops and bottoms there after during the recent large wave down (4586 ish) culminating in a little peak on 25 Nov 2015.

 

Finally I have a very nice set of down-sloping tramlines (brown) the parallel extensions of which cuts the up-sloping trams from the current move (grey) around 4530 tomorrow.

 

This could all be so much Blah Blah so I've put my money where my mouth is and gone Short at the last peek (black iii label), in case the market turns early, as it has a habit of doing, with stops above 4560.  Can always look again is the final W5 spikes to the 4580 area.

 

Would welcome thoughts, especially anyone who thinks differently!

 

Charts:

 



 

 

 

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Great analysis as always Mercury.

 

On WTI - I notice we have broken out downwards of the week running up channel within a channel scenario that proved highly profitable for me. The question is where do we go from here - I have some historical support at 4106 and then 3982 and the a 38.2 fib from Jiuy at 3948 - so a fair bit to bash through imho.

 

I tend to agree that Doha could well offer little in terms of serious outcomes - but that wont stop the market makers in the short run. If no agreement we will head south fast to 3800. 

 

As I write we are around the 4106 level and psychologial 4100  - so will sit and watch what happens for a couple of hours. I have a short ready if we break south and a long if we head north - I do love breakout strategies.

 

Will continue analysing charts in the meantime and post any thoughts.

 

 

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Where do we go from here indeed, that is the big question as always.  And also as always the answer is up or down LOL!

 

Seriously though, I'm in buy the rumour sell the fact mode of this Doha thing.  The rally has been build on the vapour of Doha and has been too strong without actual fact behind it.  At a minimum it is set for a decent retrace I feel, if not an actual resumption of the downtrend.  there is so much backlog supply out there that until things normalise more widely (not just in Oil markets) I don't see the case for the Bulls.  Therefore I remain a Bear on this but one needs to be careful, with Oil especially.

 

I have a Short near the recent turn, with tight stops against a final hourly chart leg up.  If that happens I will seek to Short again in the region of 4550 (Brent).  If that doesn't happen my Short wins.  Can't do much more so am going to leave it alone and await events.

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Today's trading strategy is ........... booking  a holiday, going to the gym, doing paperwork, sorting my daughters car insurance and then hitting the driving range for an hour etc. etc. - anything but getting involved in a  market which has everything factored in already ahead of sunday.

 

I have a long and a short built in - in case of a breakout but thats all.

 

Is anyone going to trade today ?  If so be safe whatever you do and have a great weekend.

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A wise move no doubt.  I have a Short at the recent high with a close stop.  If the market moves south from here I'll move the Stop to BE but will not add until we see what the reaction to Sunday is.  There is a risk of a spike with high volatility when the market opens so if there isn't sufficient head room to contain that I may pull the plug, there are better set up markets elsewhere, let's see what the day brings.

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So Doha disappointed the bulls (Doh!) and Oil has turned just below the resistance points I had previously targeted, I'm happy because as I stated last week I had gone short in advance in case of just this eventuality.  The alternative strategy is to wait for the turn and search for an entry on the first retrace and that is where I believe we are coming up to now.

 

On my Hourly chart I have 2 valid tramline set up and 3 tram breaks with 3 possible kiss and turn point potentials.

 

As to the longer term, all 3 scenarios I had painted out remain valid, we will see as the next few days and weeks go by whether a sharpening of focus is possible.  For now I remain bearish, I see no chance of an Oil producer deal before the Summer so what would be the catalyst for the market to rally?

 



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It's all about the cash!  Russian and Saudi leaderships need cash to keep themselves in power, I mean can you imagine what would happen in Saudi if (or when...) new tech makes Oil redundant?  Despite these massive sovereign wealth funds (Norway is a good example) they are still heavily reliant on oil revenues, the sovereign funds are like final salary pension funds, heavily invested in the organisation that created them (in this case the Oil industry).  Fine when prices were $100 but not now.  That is why they are so pi$$ed off with Iran, who could care less cos they are already at war with Saudi.

 

Only option if price isn't working for you?  Volume!  Cue more Oil market share wars and another massive leg down for Oil.

 

Near term I can see another leg up to that 4700 ish (Brent) resistance level before a big drop.  Also a rally in USDCAD is emerging, that's no coincidence.  One to watch and prepare a strategy to enter?  You bet cos $20 oil does not look out of reach. 

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Brent Crude is approaching the next line of resistance.  This is the third time of asking for me on a turn of this rally, fortunately I didn't loose anything on the other two and in fact picked up some pointage once I realised it wasn't "the" turn.  "So one more into the breach dear friends..."

 

As previously posted I thought this latest move might culminate in another leg up to the 4700 area and so far so good.  I actually took a cheeky long coming out of the small Triangle that formed around the Wave 4 consolidation yesterday and exited last night because I wanted to concentrate on stalking the turn for a short (at least I have some profits to reinvest, I love to do that...  basically it is a free bet).

 

I am looking for a turn in or around the 4700 resistance mark (note a line of Daily resistance just above at 4734).  If this happens there are a number of possible scenarios still in play in the big picture but a decent drop is indicated on all of them.

 

Oil - Brent Crude Daily 270416.png

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Pretty strong move down after a touch on that resistance line with a clear small 1-5 up.  Neg Mom Div and Oil supply data just in.  I'd be tempted to call that a turn.  Normally I be looking for a small down and up with a lower high but Oil can move away quickly so I'm in with a Short just below the turn point.  Sometime you just gotta take a chance.

 



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I have stayed safe today - traded the ups, lost on the downs, bought near bottom and ended up ok - but who foresaw that last move up?

 

I didnt so bailed too early - hey ho.

 

Looking at the charts for inspiration and finding...................... none. If we go up from here there is huge potential as I see it, but feel the need for a retrace to gather momentum.

 

 

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Another leg up is always a possibility until the turn is confirmed but this is rather a short rally and I am looking at a top out near the Daily resistance (4735ish).  Got stopped out of my short at BE so no loss and live to try another day (probably tomorrow).

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I understand where you are on this - and Crude is very similar on my charts - there is some chop ahead but we may push through 4600 up to 4700 given the market seems to have its mind set right now - I have two longs running with reasonable stop levels to allow for flutter - and am looking on buying on decent pullbacks to support levels.

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Interesting  what is driving you to conclude it will carry on up?  If I had 2 longs just now I'd be inclined to deploy a dual bet approach and cash one, keeping the other for any upside potential but also look to consider a Short at the right moment (using force entry perhaps if you want to preserve your long). 

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Thats exactly what I did and then I cashed the other on the next run, Also just picked up a long again on the opening drop and have just cashed that - all in all a good day.

 

To me thi is not a market for takig long term views given the volatility and my trading style.

 

I think Crude has to go clear 46 level first, then I dont see any real tech resistance only historic - but my point above overides all at present.

 

Something else that is on my mind at present is the £/$ - right at a 38.2 fib from Jul last year - and given we are to a large extent mirroring we get a move down if there is a rejection.

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Oil looks to be still on its bull market scenario, however and i dont know if anybody else shares this opinion, but the technical analysis does suggest some caution with the current trend. Looking at the daily chart the 61.8 % level is approaching, 2nd tramline approaching, MACD and RSI appear to now be making higher lows. 

Charts below



 

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Hi Mercury,

 

This is pretty much exactly as I see it and if we clear that next fib we will go to $50 pretty quickly.

 

Economic theory would suggest that we should have slowed the run north given that shale producers  will be producing from $42 upwards and are desperate to get their wells in operation to please the banks. Also we are heading into lower normal demand given that winter is over - although you could have fooled me when I looked out of the window this morning !

 

I am wondering who is buying and driving up the price given that production is only marginally affected in Saudi/Russia and that could be offset by Iran, could they stockpiling themselves for times ahead ?

 

So for now I am gearing my trades around very basic technicals and trading the trend - the trend is my friend - and watching the £/$ for any divergence.

 

 

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There are so many possibilities with Oil it is hard to pick out the winning scenario and probably dangerous to try but I guess we have to have a lead option.  I remain overall bearish, partly due to the facts on supply  has been offering us (many thanks BTW, great stuff!) and partly because the technicals are screaming over bought to me.

 

Regarding resistance levels and Fibs  the problem with Fibs is you have choices about where you place them, which influences your thinking.  For instance on my daily chart (below) I have placed the upper point on the monthly resistance line, just below the absolute high of my wave 4 because there is a small gap there and I like these gaps as points of support/resistance.  This also provides a best fit with the turning points on the current rally (red circles).  So now we are at the Fib 50% (a common retrace point, only exceed by the 62%) with strong Neg Mom Divs on both Daily and Hourly and in a Daily chart resistance zone.  Could it punch up through this?  Of course, Oil is a ba$tard for catching a strong move out of resistance.  On the Hourly I have a potential ending Triangle after an EW 1-5 up of a final 5 (possibly...).

 

On the balance of probabilities I think a turn down is likely and a decent bet around now with close stops to guard against any rally breakout.  I can't say if this is a major turn or not yet, it could be the end of an A-B-C but equally could jut be a 3-4 then on to a W5, maybe at the 62% Fib/next resistance zone.

 

If you want to trade it I'd say go Short with close stops (will be hard to get in once it drops as it could drop fast).  If you prefer more caution then a stop in below the ending Triangle could work.  If you want to catch any break out rally a stop in above the resistance zone is the way to go for me.  In all scenarios I'd advise caution with this one but if your not in, you can't win!

 

Thoughts? 



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Hy Mercury, if it where to surpass the 61% level, then this could be the turning point no doubt, but this also would start another tramline as well. Not disputing the fact that it could indeed reach 61%, but then again that could continue in the 2nd tramline, or form an ABC pattern. In terms of the momentum and divergence, one has to take a pinch of salt although 4 hourly suggests a change, daily is not quite clear. P.S still revising the E-WAVE theory, so forgive me if i am wrong in some way, lol

 

BRENT CRUDE 1H.png

BRENT CRUDE DAILY.png

UPDATE FROM 02/05

BRENT CRUDE 1H.png

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No wrong or right about it , opinion and everyone's could be valid.  In EW as in any analysis technique there are often several scenarios.  The best thing to do I have found is try to tease out all of them and get dissenting views from your own if you can and then make your trade on a likelihood basis.

 

For instance I can see a retrace climbing all the way above $50 on Brent but I can also see a turn could have happened already and both fit my long term analysis that we have not seen bottom.  Alternatively we may have seen bottom and all of this is the beginning of a strong motive rally back beyond $60.  What are the likelihoods though?  OPEC can't get it's act together, maybe we are seeing the final acts of OPEC as we have know it?  The Saudi's are diversifying away from Oil reliance, smart but why do it if the future of oil is not in question?  Technology is making rapid advances now leading some stock pickers to see long term booms in alternative energy, finally.  Nearer term I simply don't see this bear releasing its grip just yet, not until the stock markets are well on the way down.  Look also at Dr Copper.

 

For me this market has delivered a near perfect touch on the Fib 50% (daily) and strong move back away and now we have a break of my lower tramline on the hourly.  Neg Mom Div and other indicators are supportive of a bear move.  I would expect a retrace back to the tramline area in an EW 1-2 and we have a nice small 1-5 down in play.  If the market gives us an A-B-C back to the tramline area and then gets rejected back down sharply then a longer term drop is in play.  Let's see...

 

Oil - Brent Crude Hrly 030516.png 

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