Crude [15/04/20]

The way crude is falling it would appear that wave 5 down has started. I would have liked a little bigger bounce in wave 4, but the market does not care. 23.6% retracement is all we got. Why are not markets concerned? Because the Oil bonds that make up junk bonds are being bought up by the FED for now. So oil in wave 5 can make new lows and the next projection is at 15.20 based on 38.2% of the entire fall so far in 3 waves. The next swing low is at 16.70, made in 2001.

Crude versus Brent [20/04/20]

Everyone has their eye on oil, and there is a good reason for it. Oil on equities were co-relating pretty well for some time, but after the recent interventions the two seem to have deviated from each other. The question is, has oil bottomed? There is a good reason to expect that oil may be coming close to a low point but we need to wait for the natural price reversal. The reason is the Contango visible in oil prices. It is obvious that a lot of shorts are rolling ahead, and this caused the May futures to slip to a low of $11, but June is near 26. With wide gaps in oil prices I chose to look at Brent for a better picture of what is going on. Remember many important bottoms in oil prices were preceded by Backwardation/Contango. However Contango, when the next month is at a premium or futures is above spot can also be a bearish signal at times so care is needed.

First look at the medium term chart where wave B completed as a triangle and wave C down has started. Wave C is forming in 5 waves and we are in the 5th wave down that has to conclude somewhere. Will it be truncated or manage to fall towards the previous low or a little below it needs to be seen. The wave 3 low was at 20.72

The 2nd chart shows all the subdivisions of the 5 wave decline. Each wave must further subdivide into 5 waves. So it is clear that we are already in wave v of 5 the last and final swing down that can compete anywhere between now and below wave 3. Simply pay attention to the next reversal in price and mark that as the low point for both Brent and WTI crude; is what I would do. That will give us the first bullish possibility in months for the Oil market. But let it happen first on a closing basis. There is no hurry.

Crude [21/04/20]

If you're still confused about oil after reading yesterday's not then let us take a look at the big picture for crude. This is a chart from 1997 and shows the declining trend since the 2008 peak. A month back I wrote that if prices fall to the lower trendline near $ 22 and break it we should be open to the idea that it can go back to the 1998 low near $ 10. You may want to believe that happened yesterday, but being the last day of expiration yesterday's prices do not matter to the trend. What we saw yesterday is a sign of capitulation where long positions in May futures had to be squared up to avoid oil delivery and therefore were forced down on the market. The other side of the trade is usually taken by oil producers or commercials who have been short for a while. The surprise is that if you look at the commitment of traders report the short positions now are less than they were a few months ago, however, oil producers have probably not provided support by trying to cover their short positions. The reason is probably that oil production has not halted the way like most of the other industries have. In short this is a logical because if airlines a shutdown auto factories are not producing and people are sitting at home why do we continue to produce oil and fill up tankers that have no space left to store it. In short oil production needs to halt and probably will with the participation of US shale. Now put that into perspective on this chart where I discussed yesterday that wave C was on its last stages because wave 5 of C was already forming. After a capitulation like yesterday we should be close to the end of this move that gets followed by an X wave on the way up for one reason or the other. In other words I am not saying that the downtrend is over but it may be due for a near-term bottom from an extremely oversold condition. As stated yesterday in actual price reversal needs to be watched for what could be closeby. Here is the last clue - Daily Sentiment Index for Crude ended at 3% bulls, meaning 97% of traders are bearish. That is way off the mark and a contrarian signal as well.

The near term wave chart of Crude is below and a bounce back to the wave 4 high would go to 28.78 to start with.