CRUDE OIL UPDATE (11:00 pm EDT)
It has been a little over a year since crude oil prices made a dramatic bottom at $63.57 (Sept. contract chart) in early May 2023. Prices have stayed above that low, so we can be fairly certain that was the bottom of a longer-term 4-year cycle in crude. Because it is still early in the new 4-year cycle, we would expect prices to be bullish, but recent developments are putting a damper on this bullish view.
Our current medium-term cycle in crude started with the low of $72.23 on June 4. From there prices rose sharply to $83.58 on July 5. That high came close to but did not exceed the previous medium-term cycle high ($84.36). Crude then fell sharply to form another low on Aug. 5 slightly below the $72.23 start of the cycle. This means the current medium-term cycle could be turning bearish. If that's the case, the current rally will not exceed the July 5 high ($83.58) and prices will continue lower (below $72) until the end of the cycle.
There is, however, an alternative view that is more bullish. The two lows of $72.23 and $71.67 on June 4 and Aug.5, respectively, could be considered a "double-bottom" to a longer-term cycle. Double-bottoms are bullish, and if this interpretation is correct then prices could be headed higher, not lower, as the current medium-term cycle unfolds.
It's not clear at the moment which direction this market will take. Prices closed bullishly above the 15-day and 45-day moving averages on Monday, but now they are back down between these averages. There is resistance around $80, and after that at $82 and $84. Prices will have to clear those levels to turn the trend of this market bullish. We also note that we are now in a strong general reversal zone through next Thursday, so any new high between now and Thursday could be a potential top from which a strong downturn would follow. On the other hand, if prices continue to fall and make an isolated low inside our reversal window, that could be the springboard for a strong rally.
It is best to remain on the sidelines of crude oil for now as we wait for a more definitive trend to establish itself. I should note here that our bullish enthusiasm for crude earlier this year was based on the fact that it is still very early in several longer-term cycles in crude, and cycles are usually bullish in their early stages. This argument is still valid. We note, however, that crude oil prices are at times strongly affected by a "wild card" factor unique to this market - political tensions, war, and instability in the Middle East. Right now, this factor is affecting oil production and causing interruptions in the transportation of oil supplies, all of which make price movements more volatile. Despite this instability, I have observed over the years that all financial markets reliably conform to broad cycle parameters - even if they are slightly distorted by temporary geopolitical tensions. In other words, even in crazy markets, cycle analysis can still be a useful tool to help guide us with investment and trading strategies.
It has been a little over a year since crude oil prices made a dramatic bottom at $63.57 (Sept. contract chart) in early May 2023. Prices have stayed above that low, so we can be fairly certain that was the bottom of a longer-term 4-year cycle in crude. Because it is still early in the new 4-year cycle, we would expect prices to be bullish, but recent developments are putting a damper on this bullish view.
Our current medium-term cycle in crude started with the low of $72.23 on June 4. From there prices rose sharply to $83.58 on July 5. That high came close to but did not exceed the previous medium-term cycle high ($84.36). Crude then fell sharply to form another low on Aug. 5 slightly below the $72.23 start of the cycle. This means the current medium-term cycle could be turning bearish. If that's the case, the current rally will not exceed the July 5 high ($83.58) and prices will continue lower (below $72) until the end of the cycle.
There is, however, an alternative view that is more bullish. The two lows of $72.23 and $71.67 on June 4 and Aug.5, respectively, could be considered a "double-bottom" to a longer-term cycle. Double-bottoms are bullish, and if this interpretation is correct then prices could be headed higher, not lower, as the current medium-term cycle unfolds.
It's not clear at the moment which direction this market will take. Prices closed bullishly above the 15-day and 45-day moving averages on Monday, but now they are back down between these averages. There is resistance around $80, and after that at $82 and $84. Prices will have to clear those levels to turn the trend of this market bullish. We also note that we are now in a strong general reversal zone through next Thursday, so any new high between now and Thursday could be a potential top from which a strong downturn would follow. On the other hand, if prices continue to fall and make an isolated low inside our reversal window, that could be the springboard for a strong rally.
It is best to remain on the sidelines of crude oil for now as we wait for a more definitive trend to establish itself. I should note here that our bullish enthusiasm for crude earlier this year was based on the fact that it is still very early in several longer-term cycles in crude, and cycles are usually bullish in their early stages. This argument is still valid. We note, however, that crude oil prices are at times strongly affected by a "wild card" factor unique to this market - political tensions, war, and instability in the Middle East. Right now, this factor is affecting oil production and causing interruptions in the transportation of oil supplies, all of which make price movements more volatile. Despite this instability, I have observed over the years that all financial markets reliably conform to broad cycle parameters - even if they are slightly distorted by temporary geopolitical tensions. In other words, even in crazy markets, cycle analysis can still be a useful tool to help guide us with investment and trading strategies.
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