As if Harvey was not enough, the United States now braces for Irma, which in turn is expected to be followed by Jose and Katia. Irma is considered to be the strongest hurricane ever to hit the shores of the U.S.. Its winds are blowing at speeds higher than 185 mp/h (300 km/h), enough to erase large buildings from the face of the earth, not to mention offshore oil rigs and shipments. According to the media, the hurricane season is the main reason, fueling crude oil’s sharp rally from the low at $45.57 on August 31st to as high as $49.41 yesterday.
It might be so, but the point is that it is hard to take any advantage from this explanation after the fact. From a trader’s perspective, information is only useful if it helps you prepare for what is next. In our opinion, the best tool for the job is the Elliott Wave Principle, which we applied to the following chart of WTI crude oil, sent to subscribers before the open on Monday, September 4th.(some marks have been removed for this article)
The Wave principle is actually a pattern-recognition technique. It states that trends move in repetitive patterns, called waves. If one knows how the pattern looks and what follows it, he/she should be able to benefit from the upcoming price move. In crude oil’s case, the pattern in question was a three-wave a-b-c zig-zag correction from $50.20 to $45.57, whose wave “b” was a triangle. According to the theory, once a correction ends, the trend resumes. Here, we came to the conclusion that the recovery from the low at $42.03 was still in progress. Therefore, more strength was expected, as long as the invalidation level at $45.57 was safe. Less than a week later, here is an updated 3-hour chart of crude oil.
The market opened at $47.29 on Monday and the price shot up almost immediately. Three days later, it was already hovering north of $49 a barrel. We did not have to predict the exact path of Irma, nor we had to count the number of oil rigs destroyed or shipments delayed by it. An eye for Elliott Wave patterns was all it took to prepare us for the crude oil price surge.