It’s no secret that Oil has been in a massive decline. From over $120 per barrel in 2012 to less than $30 in 2016.
The big question is, “what’s next?” Will Oil continue down or will it head up? If we can correctly call the correction in Oil, we can get some REALLY profitable trades! But if we jump in too soon and are wrong, we lose.
Some simple technical analysis can give us the answer. We don’t have to load our charts up with too many whizzy indicators to read this one. Simple Dow Theory, with a simple Elliott Wave count can give us the answer.
Recall what Dow theory says; “a down trend is defined by Lower Lows and Lower Highs.” We’ve seen that for a long time on Oil. When that pattern is broken, when we take out a Lower High and put in a Higher High, that means something, it usually signals a change in trend, or at least the beginning of a corrective movement.
Elliot wave says that price moves in a series of impulsive and corrective waves. Elliotitians can argue all day long about the specifics of wave counts, but there is no debate that Oil has been in an impulsive Bearish wave for some time now. At some point, we will get a corrective wave up. Dow theory can signal when that is happening.
When (not if!) the corrective wave begins, then the current Fibonacci range for that is 38.2% – 61.8%, or $62.97 – $84.87 on the Crude Futures Contract. That is a massive move from current prices and there will be some REALLY good trades in Oil Futures, ETF’s and Oil related stocks.
Does this method of analysis work? Well, nothing is perfect…but using the same technique, we called the recovery in Gold. We said that when Gold futures crossed $1113, the recovery was on—and man is it! Oil could do the same thing. If it crosses $37.09 with authority and momentum (not just a few ticks,) then Oil is on as well.
We’ll provide regular updates as this plays out and if the recovery begins, we will call out some specific trades.
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