This is meant to be a roadmap for where oil might, repeat might, go in the future. This is a chart of the continuous future contract and values may differ considerable from spot prices! In any event the BIG PICTURE here, as with most everything else is than of a large A-B-C flat in EW terms. Most often the C wave ultimately reaches a point that is below the terminal point of the A wave. However if it takes an inordinate amount of time, vector equality between A and C sometimes suffices. An example of that is between the a and b legs of the B-wave, see the red arrows.

    A lot of time, about two years,  was spent going nowhere while oil stayed in a suspended state between $120 and $90. These were, we think, a series of 1-2’s that now will have to find their corresponding counter-part at the bottom in the form of 4-5’s. C waves as a whole should always be composed of a 5 –wave sequence. If the 4-5’s will also take two years remains to be seen. In fact the whole roadmap remains to be seen but at least here there is something to focus the mind on.

Incidentally, the various inflation charts very much resemble this oil chart but then without the extremes. That is not so surprising as deflation may well be the cause of both and also, by the way, gold.

You never know but this is very close to our target of about $55. RDS.B still has one or two dollars to go.

PS. It is now 7 o’clock and oil is trading with a $53 handle.

On the left we have the big picture, this is spot WTI the most common variety this side of the pond. It clearly shows that for some reason oil was “suspended” for a number of years, roughly between $120 and $100. An EW analysis would have called for a much earlier decline in a wave c of a large a-b-c, normally to new lows. However some resistance would be expected at the red line that connects the bottoms ( this chart is to Dec.12 and shows a price of $62.54, in reality spot was around $57. ) We are presently close or on to that line.

     The chart on the left is the Jan. contract . Do not know how that rose got there but it looks good so I will leave it. This future trades on NYMEX which is part of the CME, Chicago Mercantile Exchange, but trades in New York. It is on the internet if you want to see this stuff almost live, www.cmegroup.com . The nearest or front contract always converges to the spot price as it matures, in this case downwards as the market is in contango.  This means that if you are long the futures you systematically lose holding the position (think nat. gas etf s).

     It is hard to get a clean count applied to this chart. Just looking at the tangent or slope of the curve there are two clear breaking points where the angle going down accelerates towards the vertical. Those points could be waves 2 and 4 in a 5 wave sequence. If so the drop should stop about here or perhaps just a few dollars lower, say at $55. (near the red line on the other chart). Oil would then bounce, possible for quite some time before doing a number of 4 and 5’s to correspond with the 1 and 2’s at the top. Ultimately the c wave should go below the low of a ($40 on the left chart but in reality more like $30). The bounce in the next few months could take the price back up $10 to $15 easily. In commodities the 5th wave is often extended, this is the 5th of 3 so that is a different story. In any event this 5th wave is already the longest.

PS Before you decide to trade this stuff please do not forget that each contract is good for 1000 barrels, so if you do 10 for openers you have a notional position of $570,000. Also, because the volume shown above is different from that shown on stocks, do not read anything into it. Futures always expand like an accordion  and then collapse when they get close to delivery.

Elaborating on the possibility of one more dip I have found a chart of the continuous front month ( it rolls into the nearest month automatically).

Granted that counting this stuff is mostly in the eye of the beholder and therefore very subjective, it still looks to me that we have a total of 7 waves now. To complete a 5-wave sequence you need 5+ Xx4 = 9,13, 17 etc. We are missing one.

from;  http://quotes.post1.org/historical-crude-oil-price-chart/

The way most of us approach the markets is that we first formulate a preconceived idea, from our gut, wet finger, or financial gossip, whatever, and then proceed to justify that position by rationalizations or other, supposedly very scientific,  methods. EW is always happy to accommodate almost  any idea. That does not render it completely useless, but it does mean that a high degree of care is required.

Here we have the West Texas oil futures. The chart looks like it is on a semi-log scale. There appears to be a triangle forming  roughly around the $90 level and roughly in the middle of the chart. So far it has consumed two full years and probable is not yet complete as the e-leg is a tad short. If, for the sake of argument , we assume that this is indeed a triangle, then we know that these can only exist in either a wave B in a counter-trend move, or in wave 4 of a 5 wave sequence (this is empirically determined, not deducted from some theory). In the latter case wave 5 should take the futures to the level where they double top. Much higher is very unlikely as wave 3 would become the shortest. Given also that the move from the lows of $34 to about $110+ is a very distinct a-b-c itself, we do not for a moment believe that it is a wave 4 triangle. Therefore it is probable a B wave triangle as in the X of an a-b-c X a-b-c. This could take the stuff well beyond the double top level, after which it would collapse as otherwise it would not be a B-wave to begin with.

   The third possibility is that there is no triangle at all, just a series of two 1-2s. Often the “look” is pretty well identical but the outcome definitely is not. In this scenario the B-wave is complete at the $110+ level and we have been working our way down for the past two years, however with little real progress. That could change if $80, give or take, breaks.

    The way to play this then is very much along the lines of Mark Twain’s advise when he said that there are two times when you should not dabble in the market, when you don’t have the money and when you do. Here you should pass between $80 and $95 and only play outside that range, long or short, time will tell. Just do not get caught with too many oil stocks if the stuff does come down, as I believe it might.