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Crude Oil Rally May Be Nearly Over

Even though crude oil prices have moved lower than most traders expected (and we admit it -- lower than we expected!) there are signs that the decline may have farther to run. Here we offer some targets to watch in crude oil futures (CL) between now and 2016.

Stepping back a bit to view the larger picture, the rapid decline in CL during 2008 did not have the appearance of a completed correction. We would expect a finished correction to present something more like the classical three-wave move - a pattern where the forces of greed and panic compete and eventually resolve their "argument" by finding a price floor.

The 2008 decline appears to have been merely the first segment of a correction pattern, and the six years of consolidation that followed probably represented the middle segment. Now we would expect to see a five-wave downward move to complete the sequence. The monthly CL chart below shows how the downward C leg of the correction may have begun in 2013 and may still have farther to go.

Light Sweet Crude Oil Futures (CL) - Monthly
Larger Image

While the target area near $34 is viable, the weekly chart also shows where higher support levels could serve as a platform for eventual reversal. In terms of form, CL need only make a marginally lower low in order to complete the entire corrective sequence. We will be able to refine the set of candidate support levels after we see confirmation that the current upward wave [iv] is finished.

The upper edge of the channel drawn on a weekly chart suggests an area to watch for the present rally to finish. A Fibonacci retracement of about 38.2% puts additional resistance in the same vicinity. Traders should be prepared for the prospect of a downward reversal around middle or late summer.

Light Sweet Crude Oil Futures (CL) - Weekly
Larger Image

We'd like to offer SafeHaven readers some exclusive charts and analysis that can help you catch the summer trades. Visit this page to let us know you would like us to send you some samples!

 

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