Oil and gasoline lost trendline support and have done trend reversals to enter downtrends. Meaning, the right side to take is the short side (or sold into cash, but not long!). But how low might they go? I'd been thinking that the rally up in oil and in gasoline was a B wave, bear-market rally that would send them down to new lows. But that last poke up to new highs made the move look more like a 5-wave, not consistent with a B wave. And I see that Tony Caldaro who describes oil as downtrending has placed an impulse count on it - specifically, as having finished a wave 1 up so it's only to be dropping in a wave 2 (the count marked on Tony's weekly chart of $WTIC, copied in below among my own charts of oil and gasoline - thanks Tony!)(you can see all his charts at his OEW site, in the sites list at right). A wave 2 normally goes deep (so it's very tradable, in this case short), such as to a 50% or 61.8% or 70.7% retracement back to its origin. That's a significant pullback, but it cannot by definition go to a new low.
So it should be tradable on the short side for a trend-following continuation approach for the expected move down. Even those who feel bullish about oil (and gasoline) should be thinking about selling, then either re-enter if/when it returns to these levels for a breakout - or better, re-enter at lower prices when the next substantial (e.g. wave 2) low can be confirmed to pave the way for the next big move up.
Most trading and most traders should always
follow the trend. If you don't know the trend, don't be trading it. The only exceptions are trend reversals - which means entering for the new direction after the reversal is clear and can be confirmed. (The other is scalping and I won't go into that here and now.).
PS to the reader who wants to ask a cycles question about Tim Wood's cycles work - just go ahead and ask it in a comment here, I'll be able to post an answer via a response comment.
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2 comments:
Hi Ariel,
What I wanted to ask about Tim Wood's cycles is his latest call on CRB (from Sept newsletter.) Is he saying that we're in a new 3 year cycle that has possibly topped? Thanks in advance for helping me understand what he is saying.
What I understand Tim to be saying is first, there's an issue whether or not the 3-year cycle bottomed in February 2009 for the CRB and commodities in general. And he gives his opinion as to the answer on that point. Next, to focus on your specific question, I recommend you read closely what Tim says in the lower left corner of page 10 of his Sept. newsletter. I think what he says there answers your question.
Remember the seasonal cycle is different from the 3-year cycle, seasonal is a smaller time frame. Anyway - I think what Tim says in that p.10 lower-left area answers you.
But if that still doesn't do it then leave another comment and we'll try it again, no problem!
PS - I've noted, it's interesting to see Tony's count that implies oil and some other commod's may move to higher "B wave" levels - I don't know ... will see!!
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