Crude

I am starting by looking at the Goldman Sac NDX contract as it reflects the trend in Brent. Long time readers may recall my previous analysis of Brent to mention that the long term 5th wave probably ended in 2013 as a triangle. The selling from there appeared in 5 waves down in early 2015, but prices have continued lower in what looks like a ending pattern in 5 waves as shown below. Prices are also close to the 4th wave low i.e. the 2008 low which can be a good support. So I anticipate that we are close to completing wave A here amidst the worst news for the sector. A wave B counter trend move remains overdue in the weeks ahead.

With that Lets look at the WTI crude chart. Now you can see that the same wave count can be overlaid on Light crude as well. The 2008 bottom was at 32.50$. Last week I did post the ending pattern and showed that we can drop to retest the 38$ level. The lower line of the wedge is at 35.17$.

In the very short term wave E itself looks like a wedge and we are near the lower line at 37.25$. In other words wave E has achieved the minimum requirement of the wedge at smaller degree, and also the larger degree. The larger degree requirement is to break below the Wave C low and it has by 25 cents. So we can either bottom here or dip closer to the lower line. But this should be the last leg for wave A down and a larger degree wave B up would then start.

Inter Market Divergences in Commodities

Inter market divergences are a part and parcel of all commodity segments. More recently there was one between Gold and Silver before Gold bottomed in the near term. These divergences can occur at various degrees long term and near term and signal trend reversals are close.

So when you look back at 2006 you see that Copper [yellow] topped as early as 2006, however made multiple tops at the same level when gold [orange] and crude [blue] continued higher. Gold peaked by march of 2008 and did not confirm the new highs in crude in June of 2008, So in the end it was crude all alone at a new high, without the rest of the commodities right before the major top.

At the bottom of 2008-09, Gold [orange] bottomed first and while the other two were testing the bottom again Gold was not confirming it and headed higher as a lead indicator of a commodity trend reversal.

In 2011 at the top once again Copper took the lead by topping out first and Gold did so 6 months later, however crude prices [blue line] stayed elevated for another 2 years, making multiple tops at the highs even as the other two had dropped significantly. Crude seems to be the most emotional commodity. And tops are more long drawn than bottoms.

So we come to the last few months. In the near term crude was the one commodity that continued to decline till the last. In July Gold was first and a month later when crude made new lows Gold did not. Similarly in the last week it was all about crude prices crashing. But 2 weeks back it was also about falling gold and copper. However the new lows in crude are now not being confirmed by either copper or gold. This inter market divergence is signalling the potential of a trend reversal in the days ahead that needs to be watched out for. Once confirmed it would means weeks of a rally in commodities, including a recovery in crude that over reacts at each extreme.

Interesting Video

I came across this interesting video especially useful for Investors building Portfolios. It is an hour long so you will need time. https://www.youtube.com/watch?v=ZPInAq6st9c&list=PLs7uLuNA-IJfeHBdOQtbybM2r8b15vZWQ

Dow Transports and NYSE Composite

Last Year the Dow transports was a lead indicator of the coming selling in US stocks. It was falling weeks in advance of the S&P. It topped in Nov 2014, completed its triangle in March 2015, while the S&P was forming a wedge till May 2015. So in the last week the Transports is again in a free fall. Unlike the Dow that retraced 80% of its Sept losses, the transports did only 50%, in what looks like a triangle and wave C down appears already underway. This means 6850 is the target based on C=A. Can the Dow be far behind. It is holding up right now along with the Nasdaq, and so the Dow theory of inter market divergence between these indices is at its best test. The Transports indicates that sooner or later the next leg down is coming. Right now the Dow and Nasdaq are holding up well above their averages. Till they do we might see an up tick as well but when they do start to head lower and signal a sell, the transports suggests that it could be a long way down.

 On similar grounds I also covered the NYSE composite. I liked this index because it formed a text book ending diagonal or wedge at the top between Oct and May of last year. The fall from there has 9 legs that can be a 5 wave decline. So a major top should have been in place. The question is whether the 61.8% retracement achieved recently means wave [B] is over and wave [C] down  started. Unlike the transports other indices are not yet breaking down but if they do we would have to conclude it is over. Else as shown wave C of [B] up is still pending. These alternates remain open till prices confirm or we see a 5 wave decline on hourly charts at least. Or weekly indicators diverge. There are risks to the upside from here but a confirmation of the next leg down is needed.

USDCNY

Yes I am bearish on the Dollar index but not on dollar pairs. USDxxx are still in bull markets of their own, just in different part of the long term wave structure because not all pairs started up at the same time.

So I did write about the USDCNY entering the currency war. It is getting louder as wave 5 up quietly has stared. It can continue till 6.60.

USDAUD

USDAUD the consolidation appears complete on weekly cycles. Prices are at the lower end of the channel as well. So the best interpretation is that wave 4 of some degree completed and wave 5 up to the upper end of the channel is next up to 1.55-1.57

Copper

Copper continues to hold ground even as Crude prices hit lower. Copper appears in what now looks like a small triangle as the RSI moved out of oversold territory. 2.03 is the support and 2.094 is the breakout level above which a rally would start towards 2.17