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“Black Swan” Pattern Sends Crude Oil Plunging

Crude oil bulls gave their best to reach a new high last week. Alas, $74.67 was all they were capable of before running out of momentum. The following sharp plunge dragged the price of WTI crude oil to an intraday low of $69.21 on Thursday for a 7.3% weekly loss.

Among the “fundamental” factors the media uses to explain the plunge are President Trump’s trade war and OPEC’s willingness to increase output. However, the US-China tariff war is hardly breaking news. Besides, WTI crude oil prices actually shot up 14.5% following OPEC’s pledge to raise production at a meeting in Vienna on June 22nd.

Instead of counting on news and events, which the media finds suitable to explain both a rally and a decline with, we prefer to rely on the Elliott Wave Principle to help us stay ahead of price swings. The chart below was sent to subscribers before the market opened on Monday, July 9th.(some marks have been removed for this article)
crude oil Elliott wave chart July 9th
This chart shows that despite the existing possibility for a new swing high, it was definitely not a good time to join the bulls. According to the theory, a three-wave correction follows every impulse. Oil’s rally from $63.57 looked like an almost complete impulsive pattern. Therefore, a bearish reversal should be anticipated once wave 5 lifted crude to a new high. As the updated chart below depicts, the market crashed even sooner than expected.
Elliott wave chart crude oil July 16th
Wave 5 turned out to be an ending diagonal, which did not even manage to exceed to top of wave 3. The so-called “truncation“, when the fifth wave fails to breach the extreme of the third, is the black swan of Elliott Wave patterns. It only occurs in 1% of all cases, so there is no point in anticipating a truncated fifth wave. Nevertheless, the very fact that a fifth wave was in progress was enough to prepare traders for the approaching return of the bears.

What will WTI Crude Oil bring this week? That is the subject of discussion in the premium analysis you can still order and receive TODAY!



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