Wednesday, February 8, 2017

Correction on Oil - advanced Elliott Wave Theory (Triangles)

I've been luke warm on oil as it continues to trade sideways, but I misspoke when I recently called $52 support on WTI crude. Support is actually the bottom of the range, closer to $51.50ish. That's the correction I'm talking about, not an actual correction in oil markets. hehe A joke.

Now put your Elliott Wave hats on, because I'm going to teach you a thing or two about complicated combination patterns, and triangle patterns. These are probably the most miss understood EW patterns of all, so if you don't have the basics down, you should first review my free tutorial (linked in the side menu).

Elliott Wave combination patterns are labelled (W) - (X) - (Y) - (X), and sometimes (Z). It's a way of extending consolidation, in this case, after an extended sell-off in Oil. It's text-book.

The combination pattern connects either 2 (marked Y), or 3 ( marked Z), normal corrective patterns together. Google the term for a more thorough explanation... But the point I want to make is that these types of extended consolidation patterns always come to an end, if they trade into an ending triangle pattern, as my most recent revision to the EW count ( seen in the chart below) suggest.

Here is the old Oil chart labeled wave (Y), which would have meant the end of consolidation once a triangle formed, but instead of a sharp reversal we got continuing sideways, and that's a tell.

What most psudo-Elliotticians would do here, is continue to insist they are right (ego), using their own personal bias as a guide. I know, because I used to do the same thing. A better strategy is to admit where you went wrong, and start looking for an alternate outcome.

 Next, here's this mornings revision, showing a close up of that triangle, with the EW count revised to wave "A - B".

To recap, I've revised the EW count from wave (Y) (an ending triangle and a reversal pattern), to wave A - B (both triangles in a continuation pattern), because the rally in energy can't continue without oil, and because Oil continues to hang out in this range, rather than reversing back into a bear market. In other words: If 55.24 were the end of the rally, we should have seen a sharp reversal by now, and so far we haven't seen it. 

Here's what the revised EW pattern looks like. A Double ZigZag pattern marked (W) - (X) - (Y).

Another possibility is the chance of a bigger pullback in wave "B". In this case the sideways range we're trading in is a bearish wave a triangle.

Or a larger pullback in wave B - to say $40.  

 Some will ask, "what kind of prediction is that..."? Most times you're better off trying to making long term predictions, but rather trading (or not) the market you have. Right now we have a sideways market. Until oil makes up it's mind, all we can do is continues to trade the range, and once the pattern resolves trade it accordingly. This is especially true in commodities markets. I have several possibilities, patterns, and targets already laid out, and that's more than most traders have. 

Take care, AA    

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