Wednesday, December 03, 2008

Crude Oil Wave Count

Crude oil may have formed an important inflection low today when it touched the intraday low of $46.26 on NYMEX. The wave structure discussed previously remains the same. The extent of fall in crude oil is steep and magnified due to severe distress in the financial markets.

The trend still remains quite bearish for crude oil. The Elliott wave structure for crude oil shows that we are near the termination of the first corrective wave (A). An alternate count is possible which marks this as wave 3 of five wave down A. The current Elliott wave count on crude oil is show below.

Crude oil wave count

Long term count suggest that crude oil make take a lot of time to start its upmove again. Oil remains bullish for the long term and its current fall is corrective in nature.

Crude oil wave count

It is quite possible that crude oil may form low of $43.3 before beginning the wave 'B' of its corrective ABC pattern. The overall structure in oil remains bearish but short term analysis suggest that there is little incentive in shorting oil heavily.

Momentum indicators have started giving positive divergence but the price has not confirmed. If there is a confirmation by the wave of a trendline breakout, the conviction of a medium term bottom will be high. Currently the trendline stands at $54.

Crude oil positive divergence

Bullish sentiment in the oil market has hit a rock bottom. Even the most bullish of analyst have 'given in' to the steep price decline. But oil looks attractive at current price with a risk level of $43. 

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