Crude Oil Investing: A Leg Up
By S.R. Nunnally
In this article
I thought we'd bottomed out on our fourth leg of the uptrend. We hadn't.
After hitting that resistance, oil prices dropped into the first leg of the three-leg down waves.
Once the second leg is over, oil prices could see another decline, perhaps to as low as $60 a barrel.
Crude Oil Investing: A Leg Up
For the past two months, I've been talking about the Elliott Wave Theory in regard to oil prices.
The Elliott Wave Theory states that an asset in an uptrend moves in three waves that have five legs -- up, down, up, down, up. After these five legs, the theory states that the asset moves down in two waves with three legs -- down, up, down.
A two steps forward, one step back kind of thing.
In early March, when I made my way to Bloomberg for a technical analysis bit on oil prices, I thought we'd bottomed out on our fourth leg of the uptrend. We hadn't.
Actually, the dip in oil prices at the end of February and into early March was not the fourth leg at all.
It was a blip, and prices rose for another three days before we saw the fourth leg of the uptrend manifest itself. If this seems confusing, let me try and clarify things with a chart. This is a chart tracking the price of May crude oil futures:
The green line represents the five legs of the uptrend. You can see the little blip down at the end of the third leg at the beginning of March. You can also see the fifth leg moving well above $66 a barrel.
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That level happened to coincide with the previous range-bound trading that plagued crude oil through the fall months and into winter. You can see a bit of that near the beginning of the chart, before the huge drop down in January.
Crude Oil Investing: Another Decline?
After hitting that resistance, oil prices dropped into the first leg of the three-leg down waves, as noted in red. We've completed the first leg, and we're nearing the end of the second leg.
Once the second leg is over, oil prices could see another decline, perhaps to as low as $60 a barrel. We've seen strong support at this level in the past couple months, and I doubt we'll get below that level before the summer driving season's in full swing.
From there, it could be another five legs up, or one long uptrend through summer. That all depends on geopolitical events and the whims of Mother Nature…
But I'm predicting we'll be back in the low $70s just after the Fourth of July.
Anybody care to weigh in? Send me an e-mail at e-news@taipanfinancialnews.com. Let me know what you think oil prices will do this summer.
***
S.R. Nunnally is a commodities expert and technical analyst for Taipan Financial News. She is the editor of Material Profits, a monthly newsletter providing in-depth, cutting-edge research in the commodities sector. She is also the founder of Material Profits Wildcatter, employing an elite group of aggressive investment strategies.
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