The shape of the current bull market in Crude Oil is clearly forming and a current review seems appropriate at this time. Overall we are in a multi-decade bull market in Oil that started in 1998 and should last until approximately the latter half of the 2040’s.
Looking at the overall Elliot wave structure (Elliot wave structure consists of a 5 Wave advance. 1 up, 2 correction, 3 up, 4 correction, and a final 5th to the top to complete the entire move) of oil (on a daily closing basis) we started Wave 1 on 10 December 1998 at $10.72. Oil then advanced to $145.29 into 3 July 2008. This was the completion of Wave 1 which was a $134.57 advance taking exactly 9 years 7 months to complete. Wave 2 (Correction) then went down to $26.21 into 11 February 2016. This correction consisted on a 88.4% retracement on price and 78.2% on time. We are now in Wave 3. Reviewing the shape and phycology of the Elliot wave structure it seems that things are progressing accordingly.
Accordingly Wave 3 should take more time to complete then Wave 1 and according to the text books, Wave 3 is usually the largest and most powerful wave in a trend, but at times Wave 5 can be. As wave three starts, the news is probably still bearish, and most market players remain negative; but by wave three's midpoint, "the crowd" will often join the new bullish trend.
My current projections are for Wave 3 to go into 2026 sending Crude Oil to $325/$350 per barrel area. (Currently at $57)
This forecast is valid as long as we do not break $26.05 intraday.
From a very short term perspective, the upside break of $52 was done with the Commodity Funds pushing the total open interest of WTIC to historic exchange highs of 2,691,028 on November 10th and we currently have the Commitment of Traders (COT) report, indicating that the commercials have the largest net short in the entire history of the exchange also. While it is typical for Wave 3 to generate enormous power at lift-off, it is possible for a pull back. If one were to happen, the $38-42 area would be the buying opportunity of a lifetime, but as very typical with Bull Markets, especially in Wave 3, traders can miss the entire move waiting for pull backs.
Looking forward at resistance, the next point will be the $72 level, followed by $116, $148, and $225. The current move has gone from $26 to $58, a 123% advance in 21 months. I suspect that we will continue this rate of advance and can see prices challenging the $116 resistance point sometime in the Fall of 2019.
Additionally looking at other outside factors, the velocity of money has been declining steadily for over 10 years now, and is at the lowest level in as far back as the data goes. However in the latest release from the FED it did show a slight uptick for Q2 2017. If the velocity of money were to revert back to the norm which is something this indicator typically does, it could turbocharge the growth rates of M2 and send the economy and inflation soaring.
While it is way too early to forecast Wave 5, my preliminary forecast for Wave 5 is for it to end around $600 per barrel ($21 gasoline) (Wave 5 should end in 30 years from now so $21 gas is not coming tomorrow!)
Thanks Richard. Often we get views on $3 to $5 moves, it is nice to get a long term perspective of how large moves can be.
Without a war, we go back into the 20's.
Eour economy will collapse long before $21./gal oil At $5./gal we run into a stone wall.
First, I do not think that the US Economy will collapse with $8 gasoline and Second, if it does collapse then that is what happens, and if this is the option, there are no less then 500 videos on YouTube about the US Economy collapsing in the years ahead with talk that the people at the top what this outcome.
Knowing why things move up and down is a very alluring questions. Why is the DOW going vertical now? Why did interest rates go to zero and stay there so long? In most case things happen and then news reports look outside and see what is going on and state that is the reason. I have heard with my own ears, CNBC say Bonds went up because stocks went down today.I also heard them say that Bonds went up because stock went up today.. So which is it? Right now, the economy is FINALLY getting better after 10 plus years and demand will be picking up. We NEVER had a supply problem. We had a demand problem. As far as $150 oil killing off the economy. Well the economy goes up and down, because that is what the Fed wants. If the FED wants the economy to go up, then it will go up and $150 oil will not stop it. Granted we could have more inflation, but with the massive debt we have, inflation may not be such a bad thing. Anyway, the real key to all this is “The Velocity of Money”. Currently the velocity of money is at historic lows and it needs to continue lower or it is going to go higher. It does not have the power to stay lower at these levels. Think of it as a beach ball, that has been taken 200 feet under water. Once the momentum to go lower stops, it will shoot back up. If the velocity of money were to revert to the mean, the money supply will jump enormously and that will turbo charge growth and inflation. If the FED raises interest rates back to 4%, the interest on our debt will overwhelm the US Government’s ability to pay for it. Each 1% rise in interest rates, will cost the US Gov, an extra 200 Billion per year in interest costs. The end game is NOT pretty. $325/$350 oil by 2026. I also get the sense that a WAR will somehow be part of this equation, but the war will give the Politians an excuse, and will not be the real reason.
Oil is moving up nicely and my first target area of $65/$68 is being approached. We should stall in this area for awhile, while we build up a base to move even higher. For the traders looking for the $20, I hope you are using a stop. I know the markets were unforgiving to me when I was a couple years early on this move starting but at this point, we may not see the $20's again, in our lifetime.
Oil has rallied nicely over the past few weeks and has hit a high of $66.66 and closed on Friday at $65.45. At this time I would be very cautious here in oil. My reasoning is as follows:
1) M2 money supply growth is far below average and indicated a slow down ahead.
2) It looks like a stock market correction is underway and by the vertical nature of it, there could be lots of momentum players that need to be stopped out before going higher, meaning the decline has more to go. This decline could have a negative effect on oil.
3) Janet Yellon leaves the FED on Monday and she is not going to leave with Oil almost hitting a 3 year high and going higher. Her pretty image would be hurt and we can not have that. Oil is headed lower on Monday or very soon.
4)I have just over 10 years of data on the COT and in this time, we had the largest difference between the 4 largest longs/shorts and also between the 8 largest traders long/short. example - For Janaury 23, 2018 we had 17.1% of the total of all shorts was in the hands of 4 traders and 13.2% of the longs. This means the 4 largest traders are 5.2% more short then long. This is the largest difference in the 12 years of data that I have and the same can be said when looking at the 8 largest traders and again for the 4 & 8 when dealing with futures and options COT report. Historically tops and bottoms occur with the big traders overwhelmingly on one side.
5) For Jan 30, 2018 the COT for oil reports that we have the largest ever short position with the Commercials and the largest ever net long position for the funds and while we do not have a record net long position for the small traders, it clearly is larger then any recent number. All this means that the longs are weak and the shorts are strong and decline could fed on itself and any rally will be short lived cause the big plays do not use NY Stops. They use Texas Stops. (A Texas stop is if you can not let the price get above $70, you do not get out of your shorts at $70.50, you simple sell many more and stop the market from going higher above your $70 limit.)
6) The commodity funds have the largest long position in the entire history of the exchange and the commercials have the largest short position.
7) the daily chart for the US Dollar looks very bullish.
We are in Wave 3 of a huge bully market heading to $350, but even bull markets have corrections and now looks like we will have a correction. (Monday?)
Oil's decline is progressing as expected and this break has broken some support lines.
I see no reason for this decline to end before oil get to $60.00 even. That is not all that far away
at this point, but even when we get to $60, I would only consider covering shorts and new long position should wait
for some positive signs before jumping in. This market is headed much higher but right now is not that time. Even when we bottom, oil still needs some sideways action before heading to $72, the next resistance point. Things look good in the long term. Oil managed a run from $50 to $66plus without much effort. 2019 will be the year we cross $100 with the same passé style.
Lastly I should mention the US $$. On the daily charts it sure looks like it could break out to the upside and a run on the US$$ could put additional pressure on things like Oil. That has not happened yet, but perhaps very soon we can have that break out. Even a run to 91.70 which is the 50 day moving average, would fit perfectly in this dollar correction and oil correction.
Something is not right. The stock market is plunging but oil is not going down in proportion AND finding more support at the 50 DMA then I would want. Cover any shorts at this time.
Well I posted about 1 hour ago to cover shorts that this market was stalling here. That was clearly an emotional post and as a trader it is best to realize that as soon as possible. My original analysis says that this is much more then a one week ordeal, we still have the government shut down and we still are in a soft pricing period for oil until May. A closing below $60 will confirm the next leg down. The last I checked we were around $61. I say it will happen and a further decline is ahead of us.
USO (oil etf) and WTIC both closed below support levels. We are headed much lower as I originally stated.
The rally in Oil is stalling against the old resistance level of $60.00. The downtrend looks fully intact.
The average "break even" price for producers is around 50/bbl. Get much above that and supply increases.
While oil is still below $60.00 the downside has been tested enough and the charts are building a bullish base, so it would be prudent to remove all shorts. Long term models should still be long and short term models should be flat at this time. perhaps a long position around the $58.05 level with a stop around $56.80 could be tried, if the markets pulls back again. A closing above $62.02 would be bullish and signal a break out to the upside.
It won't be a straight line, but barring some geopolitical mishap, Oil will settle in the low to mid 50's over the next few months.
Clearly the oil market had a sizeable correction and the minimum downside was met with a move and closing below the $60 level which I originally projected. At this time it is also clear that the correction is over and a move higher is underway. I would suspect that this move will take us to a new high for this move ( Above $66.66) before another correction should unfold. Based on several indicators, I would imagine that we will have a "Rolling" move higher this year in oil, with lots of Ups and Downs. (obviously things move up and down each day. I am talking about up moves and down moves where each leg is more then $5.) Where oil makes higher highs and higher lows and overall grinds higher. Expecting much more Vol and higher prices in 2019 and 2020 and beyond. The one thing that bothers me is the real slow down in M2 and how low till that affects the economy and markets. Traders looking for prices in the mid $50's (Or even lower) please use a stop. We may never see prices around $55 again in our lifetime.
The very strong historical seasonal strength for oil fizzles out here but that surely has not been the main driver, just one enhancing the move higher.
CL well above its break out point but we wouldn't want it to start trading back below $66 for very long.
Heating oil too is above its upside break out point and needs to stay above $207.50.
Gasoline (basis June) however, is just below its Feb top at the moment(trading 2.0843 last tick) and continued weakness that is not followed by prices above this, make a case for at least a short term top that might last awhile.
Since these 3 liquid energies trade in tandem, even though crude has been strongest, followed by heating oil, then gasoline. If the first 2 stay strong, the weaker one will follow back up.
If the weaker one shows a double top with the Feb high, the other 2 will, at the very least come back to test their break out highs and possibly get below them.
Their price action is directly related to the storage/supplies.
Crude has been drawn down the most since last year(from the greatest supplies ever to the biggest 1 year drop in supply). Heating oil supplies have had a moderate drop(some of it from sustained cold in the Northeast this year, where they use heating oil.
Unleaded gas supplies have only changed slightly.
Pierre Andurand, one of oil’s most prominent hedge fund managers, said the current reluctance of energy companies to invest in new production meant $300 a barrel was "not impossible" within a few years.
They are finally coming around and seeing the light.