WTI crude bear setup

A happy holiday season and best wishes for 2012 to all readers. Here is a possible bearish setup for WTI crude oil futures.

Background

• Multi-year pattern since 1998 appears to be a Expanding Triangle
• Wave (V) of the Expanding Triangle started in 2009 after the big commodities sell-off in 2008
• The initial move took WTI Crude from $33 to $114 – this is marked as wave A
• Wave A was retraced 50% - this is marked as wave (a)

Setup

• In the current setup wave (b) has retraces more than 61.8% of wave (a) as it approaches the wave A extreme
• Given the outlook for a slowdown, especially in in BRICs and Europe, we could now see weakness over the next 6 months to complete wave B
• Target for this move is the $65 area, where (a) = (c)
• Here wave B retraces A by the Fibbonacci 61.8%
• The forecast would be wrong (or too early) if the price rises above the recent top at $103.5

15 YR WEEKLY 

3 YR DAILY

SENSEX completes 61.8% correction

Keeping an unbiased approach means keeping track of alternate counts. In case the 2008 correction was a wave (II), we are in the area of a 61.8% retracement of the recovery rally.

IF the alternate count works out (the developing H&S patterns would have to be aborted), THEN positive divergence on the RSI makes it a fairly good place to start a rally.

Wait for confirmation in price – a higher low is required. I wouldn’t jump in with both feet quite yet.


NOTE: The count below uses a USD denominated ETF (INP). The Rupee denominated SENSEX has not yet retraced 61.8% but the above argument can be applied once it does so. 

SPX second test of Triple Resistance

Having bumped up against formidable triple resistance - the 200 day moving average, the neckline of the H&S pattern, and the downtrend - the market is lining up for another test of the resistance area. This is the first serious challenge to the October rally. The next few days should prove clues to the subsequent market direction.  I am not biased towards either direction here as the market has worked off its oversold condition and is sitting just below significant resistance.

Dollar Index - Downtrend remains In Force

DX was soundly rejected by a combination of the PIVOT at 80, the 200 DMA and the upper boundary of the Pitchfork.

For now the onus is on the DX bulls – they need to prove this is not just a temporary setback in retaking the 80 level within a short timeframe.

As discussed earlier, the Dollar downtrend remains in force until it can work its way over the 80 level.

The Elliott wave count below portends some very bearish outcomes for the Dollar. Wave 3 of (3) of III will send the Dollar plummeting and Risk assets rising, if Dollar bulls cannot get their act together.

Charts - Framing the Markets

A falling dollar index, if it breaks below 72.5 ….

 

…. could provide SPX with the needed impetus to clear the resistance zone (1275 to 1350) formed by the 200 DMA, H&S neckline and downtrend channel resistance

 

Could we be on the launch pad for III of (III) for SPX? Stay tuned ….

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From: Friday, October 14, 2011

Dollar Index Technicals

For the bull case targeting 100:

•  The TENTATIVE uptrend channel in GREEN needs to hold
• DX needs to close ABOVE the 80 pivot line in BLUE
• For this move to be anything other than a correction of the downtrend established last year, DX needs to get ABOVE Andrew pitchfork in RED (again, around 80)
• Then it needs to break ABOVE the GREY downtrend channel to get seriously bullish

The action around the 80 pivot line could continue in a multi-year contracting triangle, reflecting the alternating concerns between the finances of the US and the Eurozone sovereigns.

Not a market to get comfortable in

There is near universal agreement that the sharp rally from the marginal new low has been breathtaking. And that it marks the beginning of a correction. The first phase down of the bear market is over. 

Many are convinced that they expect this phase to retrace 50% or 62% of the first phase of the bear market - drawing parallels with the first phase of the declines in 2000 and in 2008. 

Elliott Wave Counts are rarely decisive - except in retrospect. In times of market volatility such as now it is common for us to latch on to one count and trade with a bias. 

This short squeeze has caught many flat-footed. Doubtless, several were convinced that we were breaking decisively below the summer range. A volatile 1100-1230 range has been in force since I called for an end to the summer panic here in August.  

Back then I had labelled the August low as a wave (ii). I would now move wave (ii) to the marginal low at 1075 as below.

Do I really think we just saw a wave (ii) low? Maybe. I know of hardly anyone who expects a major bull market to unfold right now. That in itself is a strong contrarian argument in its favour. We could be climbing the proverbial wall of worry in a powerful wave 3. It may sound unbelievable, but it is possible. In fact I can count a bull market at least 3 different ways from here. The question is not whether it will happen, rather if the market keeps rallying, are you prepared?

So am I ruling out a continuation of the bear market? Of course not.

To most people the B wave began on October 4th. Yes, I agree. It most likely did. 

But it could have begun on crash low on August 9th. Or on August 22nd with a truncated minor wave 'v'. In either case of the two cases we could now be almost done with (c) of B. That means a devastating C wave is just around the corner, ready to surprise those hoping to play a  multi-week countertrend rally. If the market suddenly turns on a dime and craters here, are you prepared?

Or maybe the wave that completed on October 4th was W, and not A. That means we are in a short, sharp X wave that threatens to end anytime now. How many people mentally expect a languid multi-week rebound of the sorts we saw in December 2000 and March 2008? Are you mentally prepared for a Y wave to unfold here?

Let us be clear - this market does NOT have a favoured Elliott Wave count right now. All above possibilities are still on the table. A sharp reversal breaking below 1075 means a multi-week wave B or wave 2 is not likely. Breaking below 1000 will negate the bullish wave 3 count. Let the market decide. Be prepared. 

Arvind

PS: I urge you to read a really good post on the similarities with previous bear market rallies here.

Natural Gas setup (NG) and long-term counts

Since the remarkable sell-off in 2008, Natural Gas has been pretty much range-bound for 2 years. It appears to be building a base for an explosive move upwards.

The main count establishes a bottom at $2.408 which could begin right here. A (1)-(2)-1-2 wind-up can be counted here. The RED & GREEN counts (combined as BROWN) are illustrated in the chart. This immediate trade setup is wrong below $3.25.

The first alternative (not illustrated) is for wave (2) to go lower. This count would be wrong below $2.408.

Breaking below $2.408 would shift focus to an alternative count (illustrated in VIOLET), which is equally valid at this point. It involves breaking below $2.408 to complete an Ending Diagonal - a very reliable pattern that usually precedes a violent reversal. That count would be invalidated below $1.62.

Gold corrects at channel top - wave (IV) underway

The recent blowoff top in got scored a direct hit on the $1917 Fibonacci Extension of wave (I).

It has also reversed from the top of a multi-year rising channel previously identified here. 

Looking forward, the 200 day moving average, which has provided a measure of support throughout the past bull market provides support. It is currently at $1480 and rising.

The $1500 area is also the 38.2% retracement of wave (III). However wave (IV) is often known to retract 50% of wave (III), which would put the bottom of wave (IV) at $1380.

Naturally, I would expect the "hot-money" flows into Gold to have panicked-out at the prospect of further declines by then and would look to it as an excellent buying opportunity.

Gold at multi-year channel resistance

The recent spike up has taken Gold to the top of its mlti-year channel. Breaking through would be very bullish but I expect some reaction from the top of the channel.

Sentiment is overly-bullish and overbought due to recent safe-haven buying.

The Elliott Wave count allows the development of a sideways wave (IV)

I have to favour a pause in the bull market here - barring a continued “crash” upwards.

End of the Panic of 2011?

The case for carving out a bottom right here:

1.       Capitulation volume

2.       Fibonacci 78.6% retracement of the rally since May 2010

3.       Market deeply oversold (I know, can stay oversold)

4.       Channel support from the bull market channel going all the way back to the March 2009 low

5.       S&P Bullish Sentiment rock bottom @ 4%

                                                                                                                                                                                                                               

SENTIMENT 4% BULLS			Moving Averages
8-Aug-11	4		10	23	40
24-Jun-09	4		51	63	73
9-Mar-09	4		6	6	8
3-Mar-09	4		5	5	10
20-Nov-8	4		9	11	11
10-Oct-8	4		5	9	15
18-Sep-1	4		7	10	17
4-Apr-1	4		26	35	31
21-Dec-0	4		16	29	29
1-Sep-98	4		25	31	31
28-Oct-97	4		40	42	48
8-Jul-96	4		50	55	47
12-Oct-92	4		27	33	37
10-Nv-87	4		24	32	31

We are not in a deflation. There is no monetary contraction. Banks are turning deposits away.

A wall of money will hit the market if QE3 is announced, taking all risk assets right back up.

Or all hell could break loose and we can break below 1000 J who knows?