Crude Oil: “Bear Market” Continues?
You might not have noticed it that much at your favorite gas station (there isn’t always a perfect correlation between crude oil and the price at the pump) but in July alone, crude oil futures fell more than 20%, to bottom just above $45 a barrel yesterday (Aug. 3).
Oil is now nearing the six-year low of $42.03 we saw this spring. Says The Wall Street Journal:
“Concerns about an economic slowdown in China, coupled with persistently high production from some of the world’s biggest petroleum suppliers, have soured investor sentiment in recent weeks.
“Oil prices plunged into a bear market last month and have continued to fall in August.”
“Still, analysts said oil prices could have further to fall in the near term. The market remains oversupplied, and demand typically declines at the end of the busy summer-driving season.”
You may have already watched the recent interview with our Chief Energy Analyst, Steve Craig, where he mentioned that oil had been in the process of finishing a fifth wave down. A fifth wave is the final wave in a basic 12345 Elliott wave pattern. When it’s complete, prices reverse. The question is, how close are we to that reversal?
To answer that, you have to keep in mind that Elliott waves are fractal: Smaller-degree patterns make up larger-degree wave structures. In other words, wave patterns self-repeat on all degrees of trend. That’s one of the strengths of Elliott wave analysis. It allows you to a) pinpoint the end of a trend with astounding accuracy, and b) capitalize on opportunities at all degrees of trend.
But you can also see that this is a fifth wave within a larger-degree third wave. A wave four is due next – and because fourth waves are corrective, they move against the trend. Which means that, at least in the short term, oil is due for a nice bounce.
Some investors or traders may take it for a sign of a bottom — but with Elliott waves, you already know that oil is not quite out of the woods yet.