Where will Oil rally end?

[Mercury]

Looks like Brent Crude has turned back up again at the Fib50% after a double bottom to Wave 4.  The current potential turn looks like wave 1-2 retrace into Wave 3 of wave 5 up to the likely top of the market for the medium term outlook.  This looks like it will run to the $55 area at least, maybe more but there is a long term congestion zone on the Daily chart in or around $55.

 

Anyone got a view on Oil top for this rally and what happens after that?

 



[Ken]

I think its started for Crude at 49 when its broken down the trend line from the bottom. Also, when we consider current economic outlook, brexit etc. I think it will retrace till 44-40-36 before moving up again. What you think ?

 

 

[Mercury]

Hard to comment as I am not sure of your reasoning for the move you describe, are you looking at fundamentals driving the market or technical analysis?  It also depends on your long term outlook for this market and where we are in that forecast cycle.

 

For me I think the market will make new lows below $28 coinciding with a stock market crash but exactly when is harder to figure.  The question is whether the market has already turned to begin that move below $28 or has more in it to push this rally further.

 

I don't like the set up for a full turn but a short term retrace back down could be what we are seeing.  For me the market has to break $47 to fit this scenario.  Until that happens a move back up from above $47 is also on the cards.  Once it breaks $47 then who knows how low it could go, again depends on whether this is a major turn or just a retrace.

[Mercury]

In general I agree with that assessment , the game has changed but it is still a market influenced bay a small number of massive players so always a dangerous one to trade for retail traders.  In taking action to keep the price of oil below commercially viability levels for fracking the Saudis cannot control the market to any kind of reasonable tolerance, especially as lead times to influence the physical market are long.  Therefore we could see some wild swings down and then counter swings as the market makers try to correct again.  If there is indeed a significant global growth slowdown (especially in China) real demand will continue to reduce and in an environment where there is already price suppression the market would drop swiftly to a new low.

 

 

[Mercury]

Oil makes fools of us all!  Pretty strong bounce back off the support zone (4720-50) that is the third time of asking for this zone and the previous 2 made a decent looking double bottom.  With Positive Momentum divergence on the hourly it was a good place to try a Long, which I duly did and am not stop protected a B/E, free bet.  If this does run long and makes a new higher high on this rally then I can't see any clear resistance zone until $60 level.

 

A break back below the $47 support zone would signal a bear move for the short term but with RSI coming out of over sold on the 4 hour it looks like buy the dips on this one for a while.  Anyone thing differently?  Please shout if you think I am wrong.

 



[Ken]

Sorry guys that I do not know how to put a chart here:) 

 

From fundamentals, I cannot see any reason to push crude higher: europe will be weaker, uk maybe will go recession, china is on questions, us crude stocks nearly all time highs, there is already over supply, new oil rigs rising every week, iran in the market (which is a treat for saudis), libya and iraq producing more,  and USD getting stronger every week...

 

From technical charts: daily trend is broken, yes it is holding at 4700 support (3rd time) but highs getting lower (it has to broke 5000 and settled in the trendline at least 2 days to go up), even when there is no brexit it could not broke 5200 (last 6 weeks range 4600-5200)..

 

For these reasons I give 60% chance to visit 4000 - 4400 area. However, of course it can go 6000 as well before coming down if there is enough fat fingers in the market.

 

I really like to hear your ideas, its good make some brain storming...

 

 

[Mercury]

 Your fundamentals reasoning is reasonable and I too believe Oil will go Bearish before too long.  I also agree with  points about the Saudis and Opec indeed there is strong evidence that the Saudis are on a mission to diversify their sovereign fund away from oil, that has to be one of the most telling development in the oil market in a long long time.

 

However it is one thing being right and quite another being right on timing.  The latter is notoriously hard to do.  As  might say, you have to let the market show you first.  Oil is hard to trade for us retail traders because the fat fingers you mention is really just the mega big players, of which there are only a few and they massively impact the market.  This makes it hard to get in on the initial moves of a big motive wave.

 

I have been predicting the turn in oil (incorrectly) for some time so am naturally a bit cautious.  There are 3 scenarios I can see in the context of your fundamentals argument, which aligns to a medium term Bear, and for me a fresh lower low below $28:

1. The market rallies now and turns at the $60 mark, this would be an overshoot of  $50 target, which would not be a surprise on this kind of market
2. The market has already turned and is now in a bear move down
3. This is just a retrace of the move up over the last few months and will turn up again, maybe at the $44 mark, to make the $60 area before heading bearish

How to play this, other than staying the **** out...?  I am Long and BE stop protected as the recent bottom but if he market breaks back below $47 I will go Short and hold then see how it looks at $44.  Can't go much further than that at present.

 

PS:  To attach a chart save the chart as a picture (if you are using PRT, and you should be really) click on the save button and it already saves as a picture.  Then click on the camera icon (photo) on the menu above and select the file you want people to see.

[Mercury]

PS: I forgot to mention that on my daily chart the up trend has not yet been broken, that will take a break below $47 and the market has just made a higher low...

[Ken]

Hi 

 

Looks like we miss the train ( My shorts at 4950 could not come:((

It just went down -5% in a second as I afraid...

[Mercury]

 Oil is a spikey market at times and trading is fraught with difficulty owing to the small number of massive players that dominate this market.  When it is on a strong trend and you have called it right there is a lot of points on offer but right now we are near a potential turning point so things get difficult.  I also got taken out on my Long as price came all the way back for I lost nothing so I am not worried.  I think we are in a consolidation Triangle formation, I have seen this many times on Oil in particular and you get quite sharp reversals between the Triangle lines.  Conventional trading wisdom is not to trade the triangle moves but to wait for a breakout.  My lead scenario is for another leg up to the $60 level before the turn but will need to see a break out of the triangle before taking any kind of serious trade here.  You can see my Triangle in pink lines below.  You can see the EW labeling of 3-4 (Blue), which, if right, will lead to a strong wave 5 up.  Just now you can see a Positive Momentum divergence at the last triangle touch, which suggests a rally.  Let's see... 

 

 

[Ken]

Thanks for this perfect analysis and reasoning .

As you sad, better to wait for a break...

To be honest, I just cannot see any fundamental reason to put price up. 

Is it possible that your wave numbers are not correct ?

[Mercury]

, is it possible my EWT count is wrong?  Of course, it often is but my approach is to refine as more price data comes in and only change my mind when certain points are breached that confirms the alternative scenario.  On this market I have been seeking the a Wave 4 turn for some time and consistently getting it wrong as this rally goes on and on.

 

Before I get to technicals, regarding Fundamentals I can only agree with you on there being no reason for this market to go up but that has been the case since the turn at $28.   feels $50 is about right because of the break even point for fracking producers and that now we will get range trading.  This is possible of course but I think the market is more volatile than that scenario suggests, unless the range is 28-50.  If $50 is the desired upper limit for the Saudis then one can imagine overshoots, hence my thoughts of $55-60.

 

If the market did indeed hit its bottom at $28 then we should, in theory, get a motive (1-5) wave up followed by a retrace and then a continuation on up.  I can see no justification for such a long term move.  The very fact that the Saudis are diversifying suggests the era of oil may be coming to an end (not short to medium term but long term yes) as new technology emerges, and there is a massive amount of very interesting stuff emerging (topic for another thread).  Therefore on balance my bias is that we have not yet seen bottom and are in a retrace but where will it turn or has it turned already is the question.

 

In terms of the technicals then, I show 2 daily charts (A & B), the former just to show the two additional resistance zones that could mark the final retrace turning point.  The recent high could be the turning point as it is a credible resistance zone and Fib 62% off the May 20155 high with strong Neg Mom Div on the Daily.  The EWT count is a bit questionable and therefore it could also be a short term retrace prior to a further high.  A break of $44 would suggest the turn has happened but a rally off this level or current levels suggest fresh highs.

 

If this is a Wave 4 retrace then there are 2 scenarios, a run down to $44 area and turn back up or a complex wave 4 pattern that should conclude in the next few days with a turn back up off the triangle lower line (see 2 and 1 hourly charts below).  Obviously a strong break below the current support zone negates the second scenario but the first retrace scenario would still hold water until $44 is broken.

 

Alas this market is murky and hard to trade, no surprise there...

 

If you are already Short near the recent rally high then I guess it is worth holding that and if it gets taken out for no loss then find, try again.  For me I will wait until the fog clears before thinking about a trade on Oil.

 

[Mercury]

Hi , no I got your drift, and agree re range levels more or less (or I should perhaps say plus or minus a bit) but that has to be confirmed by the market of course.  As a scenario I agree this is a decent forecast but for now I am sticking with my long range forecast for another strong leg down to a fresh low below $28.  Therefore I am looking for either another leg up from here to short OR a longer retrace before a leg up and then Short.  This comes to the same thing as what you are suggesting, at least in the short term and then we will see which scenario is most likely.  No one seems to be suggesting Oil will head back up to $80+ at least.