Crude oil is trading more than $20 below the 2013 highs. Should we expect more weakness? Traders and investors may be willing to find the answer to this question.
A year ago crude oil hit $112 per barrel. Yesterday it was trading below $91. However, after reaching 90.40, crude oil prices bounced up sharply to 93.46. What does this jump mean? Could it be just a minor swing or a major reversal? Price charts do not lie and that is where we are going to look for the answer. By using the Elliott Wave Principle, we will examine a 4-hour chart of crude oil.
As visible, there is a very clear five-wave decline. Its fifth wave, labeled (5), takes the form of an ending diagonal. According to the Theory, ending diagonals are usually followed by a “swift and sharp” reversal. Just like now.
Note that we have labeled this whole decline with a red “C”. This means, that it should be part of a larger A-B-C corrective decline. In order to be able to see the bigger picture, we will move to a larger time-frame.
The daily chart shows, that this red wave C is part of a larger wave (B) corrective decline from $112.20 to $90.40. Corrections are movements against the larger trend. In our case, the larger trend is up, since we have an impulsive advance in five waves for wave (A). The whole price action on the daily chart is forming a complete 5-3 Elliott Wave cycle, which means, that the uptrend should be expected to resume. If this is the correct count, crude oil prices may go above $112 again. This bullish idea would prove to be wrong, if prices fall below $85.90.
