A Quick Look at Crude Oil and the US Dollar

Mar 21, 2009: 1:39 PM CST

I posted yesterday about “Crude Oil and the S&P 500 Index” but let’s take a look now at Crude Oil and the US Dollar both on the weekly timeframe.

Crude Oil (WTIC):

Crude Oil seems to be completing a “Rounded Reversal” pattern that I’ve been highlighting for some time now, and we’re finally getting a rally of the significant positive momentum divergence that has been forming (particularly on the daily charts).

As it stands now, we’re at key potential resistance via the 20 week EMA, but if price clears this level, there is ‘open air’ or open room to make a play for $70 per barrel.  Again, this is just taking a chart view on this possibility, not including fundamental or other considerations.  If the dollar continues to weaken, crude oil prices (and that of many commodities) will continue to rise.  A little inflation would be a good thing in an environment of deflation virtually across the board.

US Dollar Index:

The Dollar Index appears quite bearish in its weekly chart, particularly after having formed a doji (and sort of evening star pattern) at its recent price highs at the $89 level.  Look closely to see that a distinct negative momentum divergence formed on these highs as well.

The “angle of ascent” (I drew trendlines around it) ‘feels’ odd - almost corrective in nature, and that a down-move seems the natural pathway to work off that rise.  It almost feels like an “AB = CD” Measured Move pattern is forming, whose targets would be roughly the $78 index area.

There is potential support about the $81.50 level via the rising 50 week EMA, but if that support level gets taken out, then we would have similar ‘open space’ on the weekly chart to the downside as we do upside in Crude Oil.

We’re sitting now on the 38.2% Fibonacci retracement from the 2008 lows to the 2009 highs, and the 50% comes in at roughly $80.50, while the 61.8% retracement is at the $78.30 level.  The $79 level also reflects prior resistance from the September price swing, which should be expected to act as (at least) temporary support.

Keep watching these charts closely for additional clues.

Corey Rosenbloom
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade
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  • Kevin,

    Absolutely! I would be honored. I'll be happy to check out your site as well.
  • David,

    It seems that is the likely play. We've got a 'cradle cross' of the EMAs on the daily chart and it would seem logical price would pull back to test the confluence 'cradle' support at those levels.

    I think it would offer a low-risk, high probability trade.
  • Dave,

    You hit on what I would call the dominant count in crude.

    5-waves up (5th extended) into 2008, we have a 3 (or perhaps 5) Wave A down to recent lows, and we're now in a B back up (perhaps to the $70 level at most) before coming back - perhaps - to do a C wave which may or may not get back to current levels.

    You're right though - the wave structure does look very clear.
  • Anon,

    Thanks for the request! I'll do a post on Apple this weekend.
  • Andrew,

    I'm with you! There are two valid counts (that of an impulse and that of a correction) on the higher time frames, and until we work out a clear pathway in terms of "are we heading into hyper-inflation or continuing deflation?", then we'll still need to take analysis one swing at a time.
  • Anonymous
    Hi Corey

    I love your site

    Could I please add a link of your blog to my own blogroll

    Kevin Watson
    http://themarkettrend.net
  • Hi Corey,

    nice work!
    I also added Crude Oil on my watchlist and i'm waiting for the perfect entry, but i think there will be a pullback to the price at 45 before it will rise up to 80 $.
  • DaveB
    Is there any EW consensus on oil?

    I can count a clear 5 wave up move from 1999. My first impression now is that the fall from 147 was A of an ABC, so I would agree that the 70-80 level could be in play as eventual targets of B. But after that would come C... and more new lows.

    I can't imagine the decline from 147 was a complete ABC. It was so uninterrupted. Maybe you could say the brief rally from 90 to 110 back in Sep was B, and we have now finished C, but doesn't that seem far-fetched?

    Interested what more experienced EW ppl think.
  • Anonymous
    Hi Cory, would you please do an EWT on aapl. It's surprisingly held up well in the market.. It's hitting some overhead resistence. Unlike the hothers, it's just doji out. What do you see.. Appreciate your insight and education. Thank you.
    Munchi
  • Andrew Stanton
    The dramatically different outcomes in the Dollar are a manifestation of the ongoing battle between inflation and deflation. Right now I don't think there is a "correct" count because the war is still raging and the Elliott picture will remain ambiguous until a winner emerges. One must be comfortable with negative capability to attempt market analysis these days.
  • Anon,

    Not saying a massive inflation would be helpful, but a little would help stave off the declines. Disinflation is good; deflation generally isn't.

    That's what the Fed is trying to do anyway - pump a little inflation purposely into the system.
  • Andrew,

    That's the weird thing about the Dollar. I see both sides - that of a 1 2 3 impulse and also the possibility for an A B C correction - both would have dramatically different outcomes. The impulse would imply much higher dollar; the ABC would imply we go back to make new lows.

    I try to take it just one swing at a time!
  • haha thanks insane

    It only takes about 30 minutes to put up a post - no biggie.

    Elliott Wave posts - they take longer. :)
  • Anon
    "A little inflation would be a good thing in an environment of deflation virtually across the board."

    are you kidding me? Who is supposed to pay for the inflation? if inflation pops, it would lead to a gigantic crash. Coz the consumer wouldnt be able to afford any rise in commodities now, that will reflect in earnings results leading to systematic crashing.
  • Andrew Stanton
    If you count 1 as a leading diagonal, the Dollar finished an impulse up with an extended wave 5 wave in November. A down bottomed at the area of the prior 4th wave as expected and B formed an expanded flat. The final wave of that flat is now underway and should bottom below the low of B. Of course the November high could be wave A and the December low could be B with the recent high C or 1 of C. Whatever you bias for the Dollar; there's an Elliott count for it!
  • insane!
    Great work, take a break, enjoy the weekend...or if your bored, I'd love an EWT comparing Q's and Spy...;)
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