Oil's initial move down looks consistent with rolling over to Kondratieff winter deeper cycle lows; and gasoline may follow it down

Let's check on how oil's faring since we adopted a bearish point of view on it (USO)(WTIC) - and, I'm also going to initiate review of gasoline (UGA) with this post, as well. On oil, of course readers here know that we've been measuring it for a while, including when we went bullish at the low, stepped aside on its first consolidation, and re-entered a bullish perspective until it reached a symmetry target and then started zeroing in for its turning point for trend reversal. Anyone remember what happened the day after I posted this, Psssst! Tomorrow's finally a better day to test oil's price for weakness (6/11/09)? You can always track this, and any posts here by topic, using the labels in the labels list at right. Earlier today I saw an article describing how oil's weakness during the past week might normally have been due to NYMEX futures expiring and rollover as traders not planning to take actual delivery should have been selling and rolling over to the next month; but the actual data indicate otherwise. I'm not sure if I can locate that one right now, but then there's also an interesting review in this article at Financial Ninja, The Phantom Commodity Bull Market and the Consequences (6/10/09 - interesting timing that it came out right before the high). Ben's article also draws on data and charts about the Chinese "growth" miracle in The China Syndrome (Macro Man, 6/10/09). None of these alter the point of view we've had for weeks now, but it's definitely interesting to see some more reviews of the fundamentals with insight that may explain bearish implications in these charts.

The first chart below is actually for UGA, an ETF that tracks gasoline. One of the cycles analysts whose work I follow is turning bearish on gasoline, which I've never traded before. Having an ETF available makes this accessible for many more traders, naturally. On a preliminary basis I'm going to think it's traced out a three-wave bear market rally. After all, the move in UGA doesn't look like a five-wave impulse in Elliott Wave terms - the movement is more comparable to the move in oil, which also looks essentially corrective to my eyes. I've marked off a couple of probable channels based on UGA's daily chart movements, and set up a Fibonacci retracement series from the recent high to the low. Interesting volume spike on the selling recently, and the indicators are turning. A conservative level for a pullback would of course be the 200-day moving average, which would be slightly under the 38.2% retrace, where there's also chart support based on the prior consolidation level in early May. The 50% retrace would also be a classic pullback level and it coincides with chart support at prior swing highs in March and April. Deeper than that gets to 61.8% retrace where there were prior swing lows in March and April too. If we're going to really get bearish on gasoline then we'll just look for it to retest its December lows and maybe go under them. (Interesting to consider how that would play into political and budgetary discussions!) We'll gauge the wave pattern in UGA and the indicators, assuming it does indeed continue to roll over, to help determine whether it's going to be just a pullback or something more bearish like a 5th wave or "C" wave down pointing below the December lows.

Next are the daily chart of USO, daily of WTIC, and monthly of WTIC. Looks to me like the last leg (which I consider a "C" wave) up has an extended 5th wave, which is one thing that threw us off (probably many others too) with the whipsaw in late May after it met its symmetry target and initial Fibonacci target. But then the next day it reasserted its bullish path, as I commented that day, so we backed off of course. Finally after counting a full 5 waves up, we took the bearish point of view as I mentioned with that post above. It didn't give a proper trigger confirming until the following Monday (since that next day was a Friday that only provided an inside day). Since then it's been down in both USO and the WTIC continuous contract. What's the target here? Well, maybe the similar idea of a pullback that could test down to a 38.2 or 50% retrace ... but as readers know, I'm agreeing with the more bearish idea indicated by Tony Caldaro's Objective Elliott Wave count for a "C" wave down in oil that should at least retest the lows if not go lower. My monthly chart shows that WTIC got support at its 200 month moving average, and we'd been looking for it to do a kissback to its broken channel trendline on the monthly. It did that, and even poked above it, but is poised to lose it again.

I've discussed my views of the big-picture Elliott Wave possibilities for oil, and as I mentioned I think they are in line with those indicated by Tony Caldaro. I'll be posting his weekend update soon, which focuses mostly on equities but also mentions other markets, and as always includes his chartlink (and his site is always included in the "other sites of interest" at the right side of the page here). Yes, I know that Goldman Sachs and others are still talking about oil going to $85 or $90 (and isn't it interesting that since the lows, the Goldman Sachs stock price seems to have been approximately twice the price of oil along the way? but that probably just shows I've been thinking about it too much, LOL). From a pure play chart perspective, that could happen, and even the default P&F chart at Stockcharts.com for WTIC has indicated that same target (for both oil at about $90 and for GS at about $187, again LOL). But the view of my monthly chart, and the Elliott Wave count and Fibonacci levels (together with a resistance level that Tony has at $70 in WTIC), all have me adopting the bearish point of view.

By the way, the title here is Unbiased Trading but don't be misled, it doesn't mean that we don't have points of view and that we don't trade on them. It just stands as a goal and a reminder that we arrive at these points of view based on analytics as objectively as we can, avoiding predisposition or bias. One of the big-picture analytical frameworks that I maintain for this is the Kondratieff or long-wave view that we're still in the "winter" phase, so that it's unlikely that commodities in general have completed their long-wave cycle low. So even if price were to surprise us and pop higher to that level around $85, it would still likely roll over to lower levels.