Crude oil price target proves slippery to forecasts; here's a review

Today Goldman Sachs went bullish on crude oil - should we do the same? I'm not convinced, so let's take a look. First, we see that Goldman Sachs reversed the bearish position it took last month, and now - per Goldman Sachs: Buy Oil Now (Wall St. Cheat Sheet, 5/24/11) - asserts bullish price targets at $115, $120 and $130 for Brent crude on a 3-month, 6-month and 12-month forecast basis. So my own crude oil charts (using $WTIC, which is close to but not the same as Brent crude, but it's what I work with) for daily and then monthly chart views, are below. It's true that on the daily chart, price has tested and not broken under a trendline I've drawn from the price lows prior to the big move up close to $115. And the StochRSI indicator is confirming the positive action, yet the MACD and DMI-ADX indicators have not crossed to the bullish side. So just looking at these, all I can say is, if you go long, then okay but stop out if this trendline is broken. I'll explain further below, along with looking at the monthly chart.


Price has consolidated in what looks like a triangle following the big drop down from close to $115. If you're buying now, you're betting that price will break upward from this consolidation. Perhaps ... but not guaranteed. You're also betting that the StochRSI test to midline on the monthly chart (below) is going to work out bullishly by supporting a bounce upward. Again, perhaps ... but not guaranteed. These are additional reasons to stop out (or go short) on a break lower that would break the recent consolidation as well as the daily chart trendline.



Finally, the most concerning data point I've got is that $WTIC dropped so deep after testing the Fibonacci 70.7% retracement (just short of $115) to the "all-time" high around $148. I'll be candid, this fact alone more than any other has turned me much more bearish on the crude oil price. And the wave movement it made into that price so close to $115 looks like it can be interpreted as an ending diagonal triangle (EDT in Elliott Wave terms). This would add to the bearish view, since normally an EDT completes not only the immediate move up but also the larger wave up that the immediate move completes.

I'll be glad to reverse and go bullish too, if price breaks out of this potential "wave 2 up met, now wave 3 down" scenario implied by the 70.7% retracement. For that matter, price could even bounce further up, but if it doesn't rise back to AND then above $115, then the bearish scenario should be given the benefit of the doubt - in my opinion. This is because the 70.7% retracement is often associated with an Elliott Wave* second-wave bounce. I don't know that it typically shows up elsewhere. And the problem with a second wave is that the next movement, a third wave, is usually at least as long as the first wave (yes ... that potential "first wave" down from the near $148 to near $35 ...). It seems unbelievable now, but Fibonacci has worked well enough for me in the past that it's got me wanting absolute proof of the bullish case before I commit to the long side here.

A bounce above this recent consolidation range would be nice, but price would have to get above $105/107 area and then definitely to and above $115 before I could retire the bearish case.

Breaking under the recent consolidation range could see $WTIC testing the $90/$91 area first, and then if it's truly on a major move we'd see not only $85 but potentialy $75, before another seriously tradeable rally. Clearly, if we see oil prices moving down, then the manner in which they do so should also clue us further whether it's this "big bearish case" or just a deeper correction before another effort to re-conquer the $115 level.

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*PS I'm discussing Elliott Wave but this is my own view of it, and is not necessarily Tony Caldaro's view at all.