From mid-June to the end of last month, crude followed a sustained downtrend that saw WTI futures fall 38% from a June 14 high of 123.68 to a September 26 low at 76.25. This move wasn’t in a straight line, of course, and contained at least half a dozen retracements that sometimes looked promising, but ultimately turned out to be bear market rallies, consolidation-type moves that got under way. up for more sales pretty quickly. I remained bearish during this period, but over the past few days my long-term baseline has changed.
When CL started bouncing off that September low, most were suspicious, given how many false aurora we had already witnessed. Now, however, a month after that low was hit, it’s starting to look like a sustainable rally, both on the chart and in terms of fundamentals.
From a chart perspective, it looks more like a reversal than a simple retracement. After climbing from the low, CL pulled back a bit, but in the last few days it bounced back again. This would indicate that a real bottom has formed and if we continue higher and break above 93.64 we will be in the third wave of a bullish Elliott pattern. There is still some way to go to get there, but it seems more likely now than a return to $76, not least because the economic outlook has changed.
The change is actually quite subtle, but it significantly improves the outlook for oil demand.
As third-quarter earnings roll in, one trend is…
From mid-June to the end of last month, crude followed a sustained downward trend that saw WTI futures fall 38% from June 14.e September 26 high of 123.68e minimum of 76.25. This move wasn’t in a straight line, of course, and contained at least half a dozen retracements that sometimes looked promising, but ultimately turned out to be bear market rallies, consolidation-type moves that got under way. up for more sales pretty quickly. I remained bearish during this period, but over the past few days my long-term baseline has changed.
When CL started bouncing off that September low, most were suspicious, given how many false aurora we had already witnessed. Now, however, a month after that low was hit, it’s starting to look like a sustainable rally, both on the chart and in terms of fundamentals.
From a chart perspective, it looks more like a reversal than a simple retracement. After climbing from the low, CL pulled back a bit, but in the last few days it bounced back again. This would indicate that a real bottom has formed and if we continue higher and break above 93.64 we will be in the third wave of a bullish Elliott pattern. There is still some way to go to get there, but it seems more likely now than a return to $76, not least because the economic outlook has changed.
The change is actually quite subtle, but it significantly improves the outlook for oil demand.
As third quarter earnings roll in, a trend is emerging. Most of the bad earnings reports, with revenue and earnings misses and lower forecasts, are in the technology and business-to-business areas. The disastrous results of META this morning would be a good example. Meanwhile, consumer-oriented and manufacturing companies have fared quite well. Companies like Coca-Cola (KO) and GM (GM) did relatively well in the third quarter and, in many cases, actually raised their outlook for the fourth quarter. This indicates that businesses have cut spending in anticipation of a recession, but the recession hasn’t really happened because consumers are still spending.
This is a good sign for oil, whose demand is much more sensitive to consumer activity than software sales or online ads, but it also increases the chances of a “soft landing”. for at least the United States, and perhaps even for the global economy. US GDP rose 2.6% in the last quarter after two consecutive quarters of decline. This could be seen as raising the risk of even more drastic tightening from the Fed, but there have also been recent signs of moderating price increases. This would increase the chances of them slacking off a bit and possibly suspending hikes until the impact of the hikes so far is known. Over the past week, the bond market has started to see this as a distinct possibility, with yields deviating from their highs and the inverted yield curve flattening somewhat.
So it’s possible, probably even based on the data, that the economy won’t collapse before the Fed stops tightening, and there’s only a fairly mild downturn with what weakness is concentrated in areas of the economy that are not important in terms of oil demand. Since the decline was really all about demand, it’s a huge shift in fundamental conditions, which is why over the past few days I’ve gone from bearish to bullish.
So if we go back to the chart, where would we go in a bull market? The first target would be a break above October 10e maximum of $93.64. Like I said this would confirm this move up as a third wave in an Elliott pattern and if that happens then Elliott theory says we would move above $100 before pulling back again in wave four and then back up above the third high wave in wave five. This all seems much more likely now than just a few days ago, so for my part, I will be trading with a long-term bias until things change again.
