There is a reason why I said "this is not a recommendation" Friday on WhatsApp when I brought up the idea of buying crude oil. We have no confirmation yet in the form of a swing low. We need to be very careful here and avoid thinking "It can't get any lower". Let me say from experience.....it can always get lower.
At the posting Friday, we were getting very close to the $42.20 multi-year support level. This would ordinarily be a great time to go long, but near the close, oil dropped a little below that level essentially breaking support and closing at $41.57. This has me concerned we could see further downside.
The break is even clearer on the weekly chart. The next level of support from here is rather minor at 39.19. a drop below there could take us lower than you could envision.
The drop below $42.20 would be called an undercut low. The price dropped below previous lows which I am sure was noticed by a lot of traders. This could spook traders to sell their positions and trigger stops putting further pressure on prices. This could be a warning and we need to be very careful. This could be the beginning of a blood bath.
Cycle wise, the daily oil cycle lasts 30-50 days. Friday marked day 23. A 5-7 day blood bath would get oil to the early part of the timing band for a daily cycle low. A blood bath phase is a sentiment cleansing event and marks the end of many intermediate cycles. Once this is over, it will probably be very difficult for you to go long oil but that is the moment when you really have to buy. You normally get 7-10% returns in the first week following a blood bath and if you are not prepared to buy, you will miss the easiest money.
The intermediate oil cycle runs 25 to 33 weeks and this Friday marked the end of week 30. We should be expecting an ICL any time, perhaps this week or the next. Once we reach the next daily cycle low, we can feel pretty confident that the ICL is also in and I will be recommending long positions in energy.
There is also the yearly oil cycle we should pay attention to. Yearly oil cycles last 6 to 14 months. The last yearly cycle low was 14 months ago. Because oil fell below the $42.20 level which marked the previous yearly cycle low, we now have what is called a failed yearly cycle.
When you have a failed daily cycle, it means you are soon to have a new intermediate cycle. When you have a failed intermediate cycle, it means you are soon to have a new yearly cycle. When you get a failed yearly cycle, it means you are about to get a multi year cycle low. The multi year cycle usually lasts 34-50 months. March is month 49 and it is likely the multi year cycle low will occur this month.
Crude oil sentiment levels reached 12 at the last multi-cycle low. Sentiment levels now are still at 23 which is extreme for a normal ICL. Just as prices can always go lower, so can sentiment levels...... at least to zero anyway.
Once we get a confirmation that a bottom is in...... once we get that daily cycle low, I will recommend buying oil, but not until then. I am not recommending shorting oil either. Just hold tight and expect that we should be near a bottom in a week.
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