Prior to oil breaking above the downward trend line from March of last year, I was preparing readers for another reversal lower as oil was near the timing band for a cycle low. Most oil cycles last an average of 50-70 days, and this cycle was almost there. Traders used an attack on a natural gas plant to justify a push higher. Now, 83 days later Oil has pulled back within a few cents of filling the gap at $92 that was left on the chart back on January second.
Sometimes the cycles are short, and sometimes they get stretched. At 83 days, It is safe to say that we are past due for a cycle low. A gap fill might be all the reason for traders to stop selling and to begin accumulating again. This would also coincide with a touch of the downward trend line, which would be right at 92. I had pointed out this possibility back on January 17.
So am I an oil bull? Not really. Though oil is probably going to make a higher low, it failed to make a higher high. I am inclined to believe oil will move even lower, but until I see clarity, I would suggest buying short term needs only.
Three days ago, I had said that oil should be at a peak and should begin to drop. Oil is in the beginning of its timing band for a cycle low. Despite that, and that supplies of oil and gas being above average for this time of year, and crude inventories 9 percent higher than a year ago, and gas inventories 3 percent higher, and production of crude at the highest level in 20 years, oil popped. As you can see from the chart below, price action ruined my pretty chart.
As it turns out, Islamic terrorists took over a natural gas plant in Algeria and trade focused on that instead. Given the fact that the oil cycle is moving into the timing band for a cycle low (gray area), and that there is a fairly substantial gap left on the chart in the 92 area, I would expect to see this doji (circled in green) to become one of those abandoned baby events as traders re-focus on S&D. The cycle low may only be 92.
I am not overly bearish on oil, but if you are contemplating a purchase of oil for this spring, I think it would do you some good to hold off a week or two. Oil is in the timing band for a low to occur over the next two to three weeks, and the Commodity Channel Index is confirming that.