May 082011
 

Many of you will remember that I had called for a sell-off in the price of Crude Oil from the $140 level to $50 in 2008. (see old posts in Wavetimes, especially how Fifth wave extensions can make you rich!). The main reason for my bearish call at that time was we had completed an extended 5th wave at $147. You are now seeing another such ‘magical moment’ when yet another extended 5th wave has been completed at $114.83. The new target for Oil is now just below $71, which means there is another 26% downside left.

As I never tire of repeating, nothing works like Elliott Wave analysis when it comes to the markets. The trouble is, one has to be alert to recognize the patterns as it is happening. For example, I could have warned you of the top if I was watching it every day. Still, it is not too late even here. If Crude gets back to above 104, we would have missed only about $10 of the move. There is still about $25 left even from current levels!

Is it possible that I am wrong? Of course, I could be wrong. But we are working with stops, aren’t we? If you can afford a stop of $3 and make $30 in the bargain, I call that a fair risk-to-reward ratio! In case you are thinking of taking a short position in Oil, I urge you to do the selling in stages. 104.30-70 is one level, but we also have 107 as the 61.8% pull back level. By leaving some room to add there you will be doing yourself a favor should the market decide to turn choppy. But the best way to add to your first position is when it starts moving in your favor. You might not catch the top doing that, but at least you would be trading with the trend! Good luck.

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  6 Responses to “Medium Term Outlook for Crude Oil using Elliott Wave Analysis”

  1. Thanks, Ramki
    It looks like there is a relation between the new target of Oil prices, at $71, and the expected end of QE2 in June.
    If that is the case, should one also conclude the same thing will apply to Silver? That is, the expected target of wave 5 in Silver you talked about near $50 will not be met.

    Thanks!

    • Hi Sterling, Yes, there is a chance that Silver will not make it back to the top. In that case I would change the count and say that what I deemed as the extended 5th wave within the third wave was not part of the 3rd wave, but was the 5th wave itself. This observation has an important implication for some traders because if they are planning to trade from the ‘long’ side they are going to be disappointed (and stopped at some time). So one may ask where is the value of wave analysis if one can just change the count to suit his mood. Such a question usually comes from the ill-informed. Elliott wave analysis is not a black box. It is a tool in the hands of the trader to signal the probability of a move happening. We could anticipate the fast sell off from the top, but we are unsure about the next rally. So how do we deal with this situation. First, we use sensible stops. Second, we should ‘buy’ only after we get a mini 5 wave rally up, and then also after a pull back, so that we can place a stop just a tick below the supposed low just seen before the mini 5-wave rally… I can go on and on, but that will require a seminar or lecture….and that doesn’t come free ;)-

  2. Dear Ramki, your analysis of the 10 minute chart on crude oil projects a potential selling/shorting point at $104.90. Is that target reached/projected by adding the length of corrective wave A to the point where potentially B has finished to arrive at C or $104.90?

    • Bob, at the time of writing I didnt know that wave B was ending nearby. The 104.70 lvl is about 50% of the decline.

      • Ramki, thank you for the insight. Your guidance is like talking with with an air traffic controller while flying through a storm.

  3. Yesterday was a pretty bad day for oil. It retraced back from 104.5 and fell almost 4%. Does this mean that the down move has started? What is a good point to add to short position ?

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