The last time we talked about crude oil was on 12th September in an article, called “A Major Bottom for Crude Oil Prices?”, where we suggested, that “the Black Gold” seems to be forming an ending diagonal in the position of wave (5) of C to the downside. Almost a month later, we still think the same way. The only difference is in the shape of the diagonal. Instead of being a regular contracting pattern, it now looks like an expanding one. You can see what we are talking about on the chart below.
Expanding ending diagonals cause the same consequences as the regular contracting ones. They are reversal patterns, which is why we still stick to our bullish idea. In order to gain a little more confidence in this scenario, we will use a 5-min chart to examine the small leap prices made on Thursday (02.10.14.), as well as Friday’s (03.10.14.) decline.
And the 5-minute chart shows a very nice 5-3 cycle. According to the Elliott Wave Principle, we should expect crude oil prices to move in the direction of the five-wave sequence, in this case – to the upside. Furthermore, the corresponding a-b-c correction seems to have ended at the 61.8% Fibonacci level, which is a very common retracement level for second waves. If this is the correct count, 88.15 should stay untouched, while crude oil resumes its journey to the north.
