WTI crude oil dipped below $50 a barrel in late-November, but quickly recovered to $54.54 on December 4th. The price spent the next ten days above the $50 mark and it looked like the bulls might be able to bounce up from this key psychological level. Unfortunately for them, the price of crude oil fell to $49.05 on Monday and to $47.87 so far today.
The continued oil price weakness follows a recent deal between Russia and OPEC to cut oil production by as much as 1.2 million barrels a day. However, it turns out that any optimism about oil prices inspired by this deal was premature.
And that is the very reason why we prefer to rely on price charts than external news and events. The chart below was sent to our subscribers on December 12th – five days after the presumably bullish OPEC – Russia deal. The WTI crude oil price was still hovering above $52.60 at the time, but the Elliott Wave Principle indicated the bears were not ready to give up yet.
The price has been locked in a $5 range for a couple of weeks. According to the Wave theory, the most likely explanation for its behavior was that a triangle correction was in progress. Triangles are continuation patterns, which consist of five waves, labeled a-b-c-d-e. In the contracting variety, each wave is smaller than the previous one.
With that in mind we concluded that crude oil was still in a downtrend and as long as the price was below the top of wave “c” at $54.20, more weakness can be expected. Six days later, the updated chart below shows how ignoring a major oil production cut deal can actually be a good decision for traders.
The last time WTI crude oil traded this low was over a year ago – in September 2017. Please, note that the triangle correction did not develop exactly as we expected. It turned out wave “d” was still in progress and wave “e” took the price up to $53.24 before the bears returned. This demonstrates just how tricky triangles are. One can rarely be sure if a triangle is really over.
On the bright side, triangles usually provide a clear invalidation level. Here, that was the top of wave “c” at $54.20. As visible, the bulls never really threatened this key level. The negative Elliott Wave outlook was kept alive the whole time and sticking to it paid off nicely less than a week later.
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