Advanced GET Trading Blog: Crude Oil

As I was reading my news sites this morning I came across an article which predicted $40 dollar Crude Oil as supply has strengthened.

http://www.cnbc.com/id/35077194

My first thought was, "That's interesting..." as a technical analyst I usually view news items with a grain of salt but when I can get the technicals and fundamentals to align it's all the better. So with that in mind lets take a look at the Daily chart of Crude Oil to see if the technicals support a much lower price.

The first thing I notice is that the last major wave count is an Elliott Wave 5 top, this pattern suggests a major top is in place. However, we have been in this pattern since mid-August and Wave 5 has done nothing but continued to make higher highs, is this new top different? When I have a situation like this (continued new highs in Wave 5) I like to take a look at the False Bar Stochastic Study to get an idea of short term trends. As I've described and explained in our mentoring classes, Elliott Wave is a 300 bar look at the market trend as opposed to the 30-60 bar look of Stochastic. By looking at the Stochastic study I can analyze if this Wave 5 move is in danger of failing or continuing its strength.

We've seen Wave 5 tops in three places in Crude Oil, the first in August, the second in October and the last in January. Each time we've seen these tops the market has begun to sell off only to hold support and reach a new high. At those highs we could have initiated a Elliott Type Two sell and using a simple money management strategy they all should have been profitable. Our current retracement has reached 61.8% which is normally the maximum retracement you would see before the trend historically starts to fail. But more importantly the level that I am monitoring is the previous low that we made back in November, in order for this market to officially change trends we must take out the previous lows, markets don't change trend by making higher lows.

So if we are to see $40 crude as the article predicts a good starting point would be to take out the December low. For those of you that missed the Type Two trade at the last high we can still get short this market. Today we have our first XTL Red bar, if we can sell off below the 61.8% level and the XTL Trade Triggers we can comfortably short Crude. Our first level of profit taking or a place to adjust your stops would be the November low that we talked about. If the low is taken out our first major support level is $60.00 at the MOB, while $40 may be a good fundamental target, on the technical side $40 is way down there and some profits should be taken along the way.

Ron Wheeler

eSignal Learning