close icon

Avoiding Oil’s Fake Breakout Trap

The current pullback is likely to take crude oil prices down to $50.50, before the bulls return…” This was the last sentence of the premium crude oil analysis we sent to clients five days ago, before the markets opened on Monday, January 9th. Crude oil closed at $53.68 on Friday, January 6th, after a recovery from as low as $52.10. But instead of joining the bulls and hoping for a new multi-month high, we thought more weakness should be expected first. The only reason for our bearishness was the chart below.(some marks have been removed for this article)
oil 4h 9.1.17
According to the Elliott Wave Principle, oil’s decline from $55.42 was not over and was supposed to breach the previous low at $51.08. Corrective price action often develops between the parallel lines of a channel. In this case, the lower line of the projected corrective channel suggested the bears were aiming at the support area near $50.50, where a bullish reversal could be expected. The trading week is almost over now, so let’s see what has happened to the price of crude oil since that forecast.
oil 13.1.17
Oil did not reach $50.50. However, it fell by 3 dollars a barrel to $50.69 on Tuesday. Then, just as expected, prices touched the lower line of the channel and the bulls returned to the party, lifting oil to $53.47 as of yesterday, January 12th. According to conventional technical analysis, the drop below $51.08 would be categorized as a “false breakout”, because of the sharp recovery, which followed. With the Elliott Wave Principle, on the other hand, there are no such unpleasant surprises. It is the only technical method we know of, which can help traders anticipate these fake breakouts and take advantage of them, instead of falling victims to their traps.



Stay informed with our newsletter

Latest Elliott Wave analysis on different topics delivered to you weekly.

Privacy policy
You may also like:

Ahead of the 14% Crude Oil Dive with Elliott Wave

The crude oil market is capable of going from a state of oversupply to one of not enough supply in relatively short time. OPEC and Russia’s decisions and the fact that in a normal year the world consumes over 100 million barrels of oil daily cause the pendulum to swing from glut to deficit quite…

Read More »

Chevron Stock Doubled in a Year, Can Go Higher Still

A year ago it seemed like all hell was breaking loose on the oil industry. Even oil majors like Chevron couldn’t escape the carnage. First it was the pandemic, which forced governments to close businesses and restrict travel. Then, the Russia-Saudi Arabia oil price war worsened the situation as the two countries failed to negotiate…

Read More »

Crude Oil Reaches Bullish Target Amid New Lockdowns

COVID-19 returned with a new force in Europe after the warm summer months. Countries around the continent have entered new lockdowns in an attempt to curb the virus’ spread. The situation in the U.S. has never been worse with roughly 200 000 cases per day. But unlike during the first wave of measures, crude oil…

Read More »

Crude Oil – The Elliott Wave Reason for the Reversal

At the start of last week crude oil was trading at less than $36 a barrel. It was down from $43.84 in August and from $41.91 on October 20th. Fortunately, Elliott Wave analysis helped us prepare for this selloff in advance. So, when the weekly session began, the price of crude oil was down 14%…

Read More »

Crude Oil Bears Make the Most of Their Time to Shine

After the market broke during the pandemic panic and crude oil prices fell into negative territory, a quick and sharp surge followed. WTI climbed to $43.84 a barrel in late-August. But the crisis was far from over and the Elliott Wave principle helped us correctly predict the bearish reversal that came next. Now, crude oil…

Read More »

Crude Oil Gave Bulls a Clear Warning Before it Dropped

It’s been a bad couple of weeks for crude oil bulls. The price had been steadily climbing for months, up over 300% since late-April. In the last days of August, WTI crude oil reached almost $44 a barrel. By September 8th, however, the price was below $36.50. This 17% drop can be explained with the…

Read More »

Bullish Crude Oil Bet Pays Off Against All Odds

When it comes to the crude oil market, last month was one for the history books. The coronavirus pandemic forced the global economy to grind to a halt. This led to a sharp decline in oil consumption, while production was too slow to adapt. As a result, there was plenty of oil nobody wanted as…

Read More »

More analyses