UPDATE ON CRUDE OIL and the BROAD STOCK MARKET (10:30 pm EDST)
There are three possible ways to label the current medium-term cycle in crude oil right now:
1) Last week's deep low at $81.20 (Oct. contract chart) on Sept. 8 could be the start of a new medium-term cycle (and possibly a longer-term cycle as well). This labeling would mean that crude is very bullish now and should rally strongly. Prices need to start closing above $95 and especially $97 to confirm this bullish labeling.
2) Crude could be nearing the end of a much older medium-term cycle that is due to bottom by next week at prices at or below last week's low ($81.20). In this labeling, that final bottom would be a good spot to go long.
3) Crude may have started a new medium-term cycle with the low of $85.37 on Aug. 16. This labeling is the most bearish because prices have already gone below the start of the cycle. In this view, prices would be in a downtrend for many more weeks and would be going much lower.
At the moment, scenario one is the most likely, scenario two is less likely, and scenario three is the least likely. We note that there is another reversal zone specifically for crude coming up next week (Sept. 16 - 26), so that would be a good time for an older cycle (scenario 2) to bottom. A break and close below $81.20 would negate scenario 1, but a close above $97 would affirm it. These can be our "lines in the sand" to determine our trading strategy. The longer-term trend in crude is bullish now. If prices can hold above that low at $81.20, it's possible they could go as high $155 by the end of the year. Let's remain on the sidelines of crude for now.
Today the broad stock market halted its steep plunge from yesterday, and the DOW and S&P 500 closed slightly up. But is the sell-off over? It could be over because the DOW went slightly below its low from last week but the S&P 500 and NASDAQ did not, and all three closed in the upper third of their day's range. This is a strong bullish divergence signal that could signal more rallying. To start looking bullish, however, these indices will have to rise above their highs from Monday. If all three start falling below last week's lows, the market would be turning bearish. We will remain on the sidelines of the broad stock market for now.
There are three possible ways to label the current medium-term cycle in crude oil right now:
1) Last week's deep low at $81.20 (Oct. contract chart) on Sept. 8 could be the start of a new medium-term cycle (and possibly a longer-term cycle as well). This labeling would mean that crude is very bullish now and should rally strongly. Prices need to start closing above $95 and especially $97 to confirm this bullish labeling.
2) Crude could be nearing the end of a much older medium-term cycle that is due to bottom by next week at prices at or below last week's low ($81.20). In this labeling, that final bottom would be a good spot to go long.
3) Crude may have started a new medium-term cycle with the low of $85.37 on Aug. 16. This labeling is the most bearish because prices have already gone below the start of the cycle. In this view, prices would be in a downtrend for many more weeks and would be going much lower.
At the moment, scenario one is the most likely, scenario two is less likely, and scenario three is the least likely. We note that there is another reversal zone specifically for crude coming up next week (Sept. 16 - 26), so that would be a good time for an older cycle (scenario 2) to bottom. A break and close below $81.20 would negate scenario 1, but a close above $97 would affirm it. These can be our "lines in the sand" to determine our trading strategy. The longer-term trend in crude is bullish now. If prices can hold above that low at $81.20, it's possible they could go as high $155 by the end of the year. Let's remain on the sidelines of crude for now.
Today the broad stock market halted its steep plunge from yesterday, and the DOW and S&P 500 closed slightly up. But is the sell-off over? It could be over because the DOW went slightly below its low from last week but the S&P 500 and NASDAQ did not, and all three closed in the upper third of their day's range. This is a strong bullish divergence signal that could signal more rallying. To start looking bullish, however, these indices will have to rise above their highs from Monday. If all three start falling below last week's lows, the market would be turning bearish. We will remain on the sidelines of the broad stock market for now.
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