The price of WTI crude oil surpassed the $58 a barrel mark this week. The last time it traded at that level was in June, 2015, when the oil crash was still in full swing. Almost two and a half years later, the bulls’ efforts are finally being rewarded. It has not been a smooth ride, though, and the last two weeks were no exception. WTI crude oil’s price climbed to $57.89 on November 8th, fueling hopes of even higher levels. Instead, a sharp dip followed, dragging the price down to $54.81 six days later. And just when the bulls were ready to capitulate, crude oil reversed to the north again. Luckily, the Elliott Wave analysis of the chart below, sent to subscribers before the market opened on Monday, November 13th, managed to prepare us for all that.(some marks have been removed for this article)
This chart revealed the wave structure of the entire rally from $49.08 on October 6th. According to the theory, trends move in repetitive patterns. The most common pattern is called an impulse and it occurs in the direction of the larger trend. Since WTI crude oil was definitely rising, we the rally from $49.08 should eventually take the shape of an impulsive pattern. The problem was that by November 13th, the fourth and fifth waves – labeled (iv) and (v) here – were still missing. Therefore, it made sense to first expect more weakness in wave (iv), before the uptrend could resume in wave (v). Wave (iv) was supposed to breach the lower line of the price channel, but as long as crude oil stayed above $53.88, the positive outlook would remain valid. Lower than that would have meant this count was wrong and something else was happening. Ten days later, the updated chart below shows how the situation developed.
Wave (iv) was a little deeper than expected, but what is important is that it did not reach the stop-loss level at $53.88. So, there was no reason to surrender to the negative sentiment caused by the drop in the the price of crude oil. All traders had to do was remain calm and disciplined, and stick to the analysis. Six trading days after wave (iv) terminated at $54.81, WTI was already trading above $58 a barrel.