Crude Oil continued the downward channel and broke below the lower-bound and now is overlapping with the previous high that needs to be labelled wave a instead of wave 1.
Crude 4H Chart - July 28, 2016
In this chart, we see 2 possible options in Crude:
- The entire rally from January low was an a-b-c move up - zig-zag pattern (5-3-5)
- The entire rally was a Leading Diagonal wave 1 - less likely
Anyhow, Crude needs to find support at the 50% retracement level of the entire rally (or max 62%) and reverse to start wave C or 3 up. Until Crude bottoms, we need to understand what is happening now.
The nature of the correction from the highs has a complicated start (red wave a or W), followed by an impulsive c/Y down that is targeting 50% retracement. Entering short around these levels with the anticipation of further downside (swing trade) might turn into a losing trade due to increased chances of a reversal (even though there is no clear sign - 5 up-3 down)
$40.70 is 162 extension of wave a-b and should serve as a strong bounce if tested
USO (NYSE:USO) Daily Chart - July 28, 2016
USO broke below 50% retracement and might test the next Fib level.
Things to Remember
- Close above the lower-bound of the channel should be a bullish sign
- 5 waves up from the low and a 3 wave down pullback is the strongest bullish sign
- A close of 2 candles (1h) above 50SMA is a possible change of trend
- Observe 200SMA
- A close below 62% retracement is not a good sign and below 78.6% retracement is dangerous