Crude Oil Down 7%, Support Tested At $52.40
Dailyfx | Jul 07, 2015 02:51PM ET
- Largest down day since March 27, 2015
- Impulsive Sell-Off likely retests $44 lows
- Flat correction likely tests $41-$45
With negotiations continuing on Greece today, the collateral effects of a Grexit is taking the toll on crude oil (CFD: USOIL). Today was the largest down day since March 27 as prices test the support level created by the March 26 high.
Over the medium term, we look for this support to break as two different Elliott Wave pictures paint a deeper sell off to below $45.
For those unfamiliar with Elliott Wave Theory, wave counts are probabilistic in nature and the two scenarios below are considered the higher probability options, though other scenarios exist.
The two scenarios discussed below are:
- Impulsive 5th wave to levels below the end of the previous 3rd wave of $44
- Flat downward correction to $41-45
The turning point near the May 6, 2015 high suggests that the circle wave ‘iv’ counter trend bounce higher may have ended. This bounce higher terminated near the 38.2% retracement of the circle wave ‘iii’, which is a common relationship.
The price action from May 6 to June 24 has been incredibly messy. When cutting through the sub-waves of this period, we see the potential for a wave ‘i’ down (impulse) followed by a wave ‘ii’ expanded flat correction that ended on June 24. That means we are likely in the midst of a wave ‘iii’ lower.
Created using TradingView Charts
So long as prices stay below the May 8 low of 58.11, this interpretation remains valid as we look for lower highs and lower lows to continue to build.
There is another higher probability scenario that we’re following which is a downward flat correction. It would carve out in 3 waves down and it appears we have the first two waves already finalized. The 3rd wave (‘C’ wave) should sub-divide into 5 waves. We may be in the midst of the 3rd wave of that 5 wave sequence. This flat correction should retrace a heavy portion of the previous uptrend which could take the instrument down to $41-$45.
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In the chart image above, the downward flat is identified with the alternate labels. The image below is the idealized pattern and we are located now, if this is the pattern at play.
Conclusion
For the past week, the sell-off has been relentless. That type of long and strong move corresponds to a 3rd wave. Both wave counts show we could be in a 3rd wave of some sorts.
So long as we remain below $58, both resolutions to below $45 ought to be respected.
/h3
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