a Crude interruption?

In the world of financial assets everything appears to be calm. Risk is on, CDS premiums and the VIX near all time lows, short/long term interest rates cheap, and central banks continue to flood the markets with liquidity. So how could a “black swan” arise from the ashes to disrupt the world’s economy?

We have some hot spots to consider. Argentina and Puerto Rico in default. The Ukraine/Russia conflict. A self-proclaimed Caliph in Iraq. So what could disrupt the markets complacency? Probabilities suggest the disruption will come from where it always comes from in recent times: the price of energy.

Crude1970

This is chart of the price of Crude oil since the year 1970. Notice the 10 year bull markets between 1971-1981 and 1998-2008. These bull markets were separated by a 17 year bear market. For those that follow OEW this is called the commodity cycle: typically 34 years long, but this one was only 27 years from bottom-bottom and peak-peak.

Notice the recessions of the early to mid 1970’s, and early 1980’s during the first bull market. Similar events occurred during the recent bull market: recessions in the early 2000’s and late 2000’s. After the 2008 peak Crude entered a bear market which should last about two decades. If the pattern replicates we should see a major low around the year 2025. During the last bear market, however, there was a spike that drove Crude nearly back to its highs, and this helped trigger the 1990 recession. All of the price rises for the past 45 years have been demand or geopolitically driven.

Crudeweekly

With this chart in mind we reviewed the wave structure of the Crude market long/medium/short term. The basic structure has not changed: bull market peak 2008, Primary wave A low 2009, and Primary B underway. We labeled the 2011 high as Major wave a, and 2011 low as Major wave b, with Major c underway. We had placed a tentative Primary B label at the 2012 high. After the recent review, we no longer feel that is appropriate. Major wave c appears to be still underway.

During the review we observed three five wave rising patterns, albeit overlapping, during Major wave a. The first completed in 2009, the second 2010, and the third 2011. This is a bear market rally so nothing unusual. During Major wave c we are also observing three overlapping five wave rising patterns. The first completed in 2012, the second in 2013, and the third is still underway. This analysis suggests Crude will exceed the 2013 $112.24 high this year, and the 2011 $114.83 either this year or next. Once it does, the probability of going back to the 2008 $147.27 is certainly possible. The one thing that the central banks can not control is the cost of energy and its effects on the global economy. Would suggest keeping an eye on Crude in the weeks and months to come.

About tony caldaro

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36 Responses to a Crude interruption?

  1. M1 says:

    Hi, Tony
    Interesting report.
    Years ago (when crude oil was trading at more than US140), I suggested the crude oil may need to retest its brakeout level. We know that US$40 was the resistance level for abt 24 years (since 1981), so not surprised abt the 2008 crash.
    Now, I beleive crude oil may need to make a huge run up (well up above 2008 highs) before it crusheds again.
    What could cause such a rally ? No doubt it won’t be a growing economy.
    Precious metals should run up in tandem.

  2. torehund says:

    http://torehund.wordpress.com/2014/07/05/x-waves-are-sturdy-thats-why-they-put-them-at-the-bottom-6-in-total/

    Remniscent of the Crude chart from 09 until present. As go X/stones as go X/Waves, oil is still the fundamental building Blocks of Our civilization.

  3. Tony, Crude is certainly due for a major move…crude vix is at a 20 year low, yet there is a $9 backwardation in the same month 2015 contracts which suggests that your bear market rally is the better call and that the next major move will be down. ?

  4. mccarthyti says:

    everyone looking for something to suddenly threaten economic activity? how about the outbreak of disease or virus? nothing could destroy the normal everyday activity of an economy like an outbreak of a deadly disease or virus in a developed economy. I mention this because the Ebola outbreak in west Africa is very bad this year. it is believed this virus takes hold too quickly to let it spread across the globe and health officials don’t allow people to leave these regions of the world. its something that could cause people to avoid shopping malls, offices, bringing an economy to a halt.

    • torehund says:

      Mc _Martin Armstrong foretells that we are now entering a Pest cycle. You mentioned Ebola in W.A, then there is MERS brewing in Arabia, you had some Anthrax spills in US.
      Wars, humans living too Close together, lack of Food and bad sanitation make these viruses and bacterias thrive.
      We are feeling the overpopulation strain ore enanced, compared to availability of Resources, thats for sure.

  5. Michael Schapek says:

    lite Caldaro…..oavsett om vi inte gillar hans analyser så har han haft hyggligt rätt och följt bull trenden…. denna artikel är dock intressant…

    the ELLIOTT WAVE lives on skrev 2014-07-04 13:34: > WordPress.com > tony caldaro posted: “In the world of financial assets everything > appears to be calm. Risk is on, CDS premiums and the VIX near all time > lows, short/long term interest rates cheap, and central banks continue > to flood the markets with liquidity. So how could a “black swan” aris” >

  6. nice work Tony, a spike in wtic to at least 150 looks very likely.

  7. the “paranoid android” roadmap for monday, part I:
    http://standardpoor.wordpress.com/

  8. ariez5 says:

    crudus interruptus?
    (head down…)

  9. hooloo1957 says:

    happy 4th of July everybody, in 2008 when crude was at 100, gasoline inventories were at 10 year highs. I don’t remember any wars at the time, except for the usual war.then it rocketed to 147. so what was the cause of that?

  10. soulsurfer says:

    Thanks for this update Tony! All eyes on energy (as usual) since energy usage, and its price are directly and positively related to a society’s level of development. Hence, why we can only reduce energy usage per capita and/or increase energy prices so much before starting to affect development.

    A drop in gasoline prices would certainly be welcome, ’cause $4+ / gallon is getting very steep… But it appears it will first go up a bit more!? :-(

    Note: Germany recently banned shale-gas fracking till 2021.

  11. Akhil Gupta says:

    Thanks Tony

    Grateful for your near term outlook on the Indian stock market, which continues to scale new highs.

  12. torehund says:

    Yes Tony, these off the index escapades are greatly appreciated.
    Studying the Charts even furher I can see all but 6 X-Waves from the 09 boottom until now. The X- Waves are the ones of incruciating indecisiveness and terror of the dull equilibrium.
    But since 09 they are always tilting a bit upwards.
    Like Volcanoes these X es stand there in silence, before they finally erupt ina squeeze of hot lava !

  13. greggw2gs says:

    Thank you Tony

  14. Lee X says:

    Thanks Tony !

  15. opader says:

    Impressive analysis Tony. Thank you.

    Twenty years of trading experience (i.e. looking at charts) has shown me that “the news is in the chart”. With major indices about to top their major waves (Major 5 for SPX, Major 3 for NDX and RUT) and crude coiled to go higher, my guess is that something major is about to happen in the Middle East, very likely something terrible.

    • tony caldaro says:

      certainly looks that way

      • opader says:

        Thanks for response Tony … on a different topic, would u plz share ur thoughts as on sub minor wave count for SPX? I believe we have possibly topped Minute I of Minor 5 and about to roll over to start Minute II. My Micro count of Minute I is as follows:

        Micros of Minute I: 1944.69-1957.71-1952.18-1978.58-1972.58-1985.59

        So we’re in Minute I of Minor 5 and probably about to roller and start on Minute II.

        Does this make sense to u?

        Thx

      • tony caldaro says:

        With today’s rally Minor wave 5 has now advanced 41 points without a meaningful pullback. All pullbacks, from the Minor 4 low at SPX 1945, have been limited to 6 points.

  16. mjtplayer says:

    Thanks Tony – good stuff!

  17. torehund says:

    Tony I am going for a slightly higher high than the V in – 08, then it constitutes 2 Waves up finished making the Cycle wave 1 top at 160 USD o so. Would make a Nice A, flattish B and then a rising C into mid 2015. After that one would expect this Cycle wave 1 to retrace partially, then going into a cycle wave 3.
    I am more bullish on coal as a prolonged period of depressed prices has caused some serious addiction, It may become the New black gold,

  18. perversionofthemean says:

    Great insight; thank you! With Q1 GPS surprisingly negative, is it reasonable to wonder if Q2 can be too, meeting the definition of recession? It seems atypical for markets to be hitting new highs *during* the two-quarter down period. More likely equities peak with your shock, and later the economy feels it…

  19. 16golfer says:

    Thanks Tony. Higher gas prices at the pump would surely put the brakes on this relentless bull.

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