Technicals | Oct 24 2012
Bottom Line 23/10/12
EW Trend: Corrective
Price Trend: Neutral
Trend Strength: Weak
Technical Discussion
LAYMANS:
Earlier this month we put forward the reasons why recent price action was not conducive to the start of a strong bullish movement, indeed it signalled that perhaps not all was well. New trends, and even existing trends, must show impulsive price action, specifically strong and clean movements in a singular direction. It was clear that [West Texas Intermediate] Oil was overlapping off its late June lows which is suggests further posturing is taking place and more importantly that it was not ready to rise. Price has dipped back to [US$/bbl] 90.00 and struggled to find a bid so by all accounts we expect further south bound activity and maybe even a challenge of the significant support down at 78.50. This is the lower boundary of a very broad range so it's expected that decent buyer demand will again step in to support prices. Ideally if price deterioration can halt just above 80.00 then we have a round of reasons to expect a rotation higher again back toward 100.00. As Scott mentioned in his last review, significant momentum above 100.00 is required before we can start getting overly bullish. Until then Oil is stuck in the range.
TECHNICAL:
The only objective take at this stage is that Oil is continuing to consolidate in what is becoming an increasingly complex pattern. What we need to do here is look for the most sensible and best fitting labelling of price and only trade when patterns are perfect. The recent advance was clearly corrective and therefore can only be labelled a wave-A if support holds. If support breaks in the coming months then the recent high becomes a wave-(X) and for all intents we would continue to see significant weakness take shape. However, with support yet to be penetrated we must assume it will hold so the appropriate location of trend is that we're declining in a 3-wave correction that will be a wave-B. This is obviously quite a deep retracement so far and if it fulfills its requirements could take price right down to support nearer 80.00 to achieve wave equality. As is usually the case, corrections, especially large ones, are difficult to predict so patience will be rewarded in this case. A sharp reversal here with a subsequent break back through 95.00 may indicate this wave-B has completed, albeit not symmetrically, and that wave-C higher has begun. Possible, but appears unlikely with the information we currently have.
Trading Strategy
Whilst it's probable that price will continue to slide toward wave equality and the major level of support, the better trade is to await those lower levels, assess buyer demand and initiate long positions there whilst at the same time 'leaning' on support. Alternately, an aggressive trader could initiate long positions should price reverse sharply here and head back through 95.00. This would suggest wave-C is starting suggesting a move back toward 110.00 is possible. We'll discuss developments as they occur.
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