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Crude Oil Even Weaker than Expected

WTI crude oil bulls looked very confident at the start of the week, when they lifted the price to $70.41 a barrel on Monday, July 30th. Unfortunately, their enthusiasm quickly faded, allowing the bears to cause a selloff to $67.34 as of Wednesday, August 1st. One of the possible “reasons” for the decline was the 3.8 million barrel increase in U.S. commercial crude oil inventories revealed by the latest report by the U.S. Energy Information Administration.

The problem is that by the time the report was published, the bearish reversal had already taken place. Traders simply cannot rely on external factors such as news and events in order to prepare for the next move, because by the time the news arrives the next move is in progress already. Our solution is the Elliott Wave Principle. It was the analytical method, which we applied to the chart below on Wednesday, July 25th.
crude oil Elliott wave forecast
This hourly chart revealed that crude oil’s plunge from $74.67 to $67.08 had the structure of a simple a-b-c zigzag correction. Under normal circumstances, we would expect the larger uptrend to resume. However, our analysis includes the big picture outlook, as well. A week ago, the big picture suggested the bears were not done with crude oil yet. That is why the a-b-c drop from $74.67 was labeled as wave w) of a larger correction.

On July 25th, it looked like wave x) was under construction. Its wave “y” was supposed to exceed the top of wave “w”, but the upper line of the corrective channel drawn through the lows of waves w) and “x” of x) was likely going to discourage the bulls and open the door for another leg down. The updated chart below shows how the situation played out.
crude oil Elliott wave analysis update
As visible, wave “y” did exceed the top of wave “w”, but could not even reach the upper line of the channel. WTI crude oil prices reversed to the south slightly ahead of schedule and breached the lower line of the channel on July 31st – one full day before the EIA report.

It is not that news does not matter at all. Sometimes something totally unexpected happens and turns things upside down. But most of the time, the news is just a catalyst for a price move, which has been all set up already. And quite often, it only reinforces a trend that is in progress anyway. So the next time you find yourself waiting for a report or an announcement, don’t forget to check the charts, too.

What will WTI Crude Oil bring next week? That is the subject of discussion in our next premium analysis due out on Sunday!



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