Executive Summary
- Crude oil has rallied to close up about 4% this week
- The rally likely stalls below $79 to lead to a larger decline
- Downside targets include $67, $61, and mid-50’s
Crude Oil Elliott Wave Analysis
Despite the sell-off on Monday, crude oil has rallied to close up nearly 4% this week.
Our Elliott wave analysis shows this rally is a corrective bounce within a larger downtrend and may be fully retraced.
The model we are following and originally shared in the Commodities June 29 forecast points to crude oil spending most of Q3 in a downtrend.
Crude oil took a hard spill early this week and that appears to have finished wave (i) of ((iii)). According to our model, the rally this week would be wave (ii) of ((iii)).
Zooming in on the 4-hour price chart, crude oil has rallied far enough to relieve the oversold pressures. It would be ‘normal’ for the rally to carry up to $79 before rolling over. Therefore, somewhere between the current price at $79 is the high probability zone that crude oil makes a bearish reversal.
Once the selling resumes in wave (iii) of ((iii)), then crude oil may spill lower towards $67 and possibly $61. There are even more bearish models that point to the mid-50’s.
that once this bounce completes, then selling would resume and spill crude oil to the lower 60’s and possibly 50’s.
Bottom Line
Anticipate a bearish reversal in crude oil to develop in the next few days between now and $79. If this model is correct, then crude oil would trend lower to $67 and possibly $61 with even lower levels possible in the mid 50’s.
In the unexpected event of a rally about $84.49, then we’ll need to reassess the Elliott wave count.
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