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.