Oil Game Changer

Oil dropped over 13% on Friday to extend its daily cycle decline.

Oil printed its lowest point on Friday, day 67, placing oil very deep in its timing band for a DCL. At this late stage of the daily cycle, a swing low and close back above the 200 day MA will have good odds of marking the DCL.

 So, while oil could potentially begin a new daily cycle next week, Friday’s huge drop is a game changer that will likely send oil into an intermediate and yearly cycle decline. Which I further discuss in the Weekend Report.

Oil Loses The 10 Day MA

Oil was running into resistance at the 50 day MA for the past week before closing below the 10 day MA on Thursday.

The bigger picture shows that oil is a pattern of forming lower highs and lower lows. A break below the 67.00 support level will signal the daily cycle decline. The peak on day 8 indicates a left translated daily cycle formation that aligns with oil being in a daily downtrend. Oil will remain in its daily downtrend unless it closes above the upper daily cycle band.

Oil Downtrend

Oil peaked on day 8 then formed a lower swing high on Friday. The peak on day 8 sets oil up for a left translated daily cycle formation.

Friday’s swing high formed below the upper daily cycle band. Oil is in a daily downtrend. Forming a swing high below the upper daily cycle band signals a continuation of the daily downtrend and triggers a daily cycle band sell signal. Oil should go on to break below the day 14 low of 65.01 as it seeks out its DCL. Monday was only on day 19. Oil could trend lower for another 2 to 4 weeks to place the daily cycle in its timing band for a DCL.,

Oil Forms A Lower High

Oil lost the 10 day MA on Monday and then the 50 day MA on Tuesday.

Oil forming a lower high along with a peak on day 8 sets oil up for a left translated daily cycle formation which signals that the intermediate cycle decline has begun. RSI embedded in oversold during the day 39 DCL. RSI then reversed quickly once it became overbought. This change in behavior in RSI aligns with oil rolling over into an intermediate cycle decline. If RSI embeds once again in oversold that will signal the intermediate cycle decline. And with Tuesday was only day 10, oil can trend lower for another 3 – 4 weeks before printing its DCL.

Oil Breaks Out To A New Yearly High

Oil broke above the March high on Tuesday, establishing a new yearly cycle high.

After peaking in March, oil declined into a DCL. The ensuing daily cycle saw oil peak on day 39, which was below the March high. Oil printed a DCL on 5/21, which makes Tuesday — day 6 for the new daily cycle. After a 3 month consolidation, breaking out to a new high this early in the daily cycle should result in a bullish trending move. If oil delivers bullish follow through then the day 39 breakout level can be used as the stop.

However, there are some concerns.

  • This is month 14 for the yearly oil cycle, which places oil deep in its timing band for a yearly cycle decline.
  • There are bearish divergences developing on the oscillators.
  • Oil formed a bearish reversal on Tuesday.

If oil forms a swing high and closes back in the resistance zone that would jeopardize the breakout. A close below the resistance zone would set oil up for a left translated daily cycle formation.

Oil Delivers Bullish Day

On Tuesday we noted that Oil was running into resistance at the 66.50 level.

Oil closed above the 66.50 level on Thursday. Another possible area for resistance is the day 39 high of 67.02. But with oil only on day 4 for its new daily cycle, oil should have the energy to break though this resistance level. With oil being in a daly uptrend, a break above the day 39 high should result in a trending move.

Oil Runs Into Resistance

Oil broke below the 50 day MA on Thursday to print its lowest low on Friday, day 42. That placed oil well within its timing band for DCL.

Oil formed a bullish reversal and closed back above the 50 day MA on Friday. Then oil delivered bullish follow through by closing above the 10 day MA on Monday so we will day 42 as the DCL.

Now oil is running into resistance at the 66.50 level. Oil is in a daily uptrend. A bullish break above the 66.50 resistance level will indicate that oil will remain in its daily uptrend and should result in a trending move.

Oil Forms Daily Swing High

Oil is currently in a daily uptrend that is characterized by highs forming above the 10 day MA and lows forming above upper daily cycle band. It will remain so unless it closes below the lower daily cycle band.

Oil formed a daily swing high on Thursday. Oil had become stretched above the 10 day MA, so minimally oil many need to consolidate in order to allow the 10 day MA to catch up to price.

The previous daily cycle was stretched at 55 days. Often times a shortened cycle will follow a stretched cycle, which allows the cycle counts to balance out. If oil delivered bearish follow through and closes below the 10 day MA that would signal the daily cycle decline. Then a break below the (black) intermediate cycle trend line would indicate an intermediate cycle decline.

Oil Rejected

After peaking on day 7, oil had been finding support at the rising 10 day MA – until Tuesday.  Oil closed below the rising 10 day MA and the 200 day MA on Tuesday.  Then oil delivered bearish follow through as it was rejected by the declining trend line on Thursday.

Oil closed below both the 10 day MA and the 200 day MA on Thursday to signal the daily cycle decline. Thursday was day 16 for the daily oil cycle. The peak on day 7 sets oil up for a left translated daily cycle formation. A break below the previous daily cycle low of 36.13 will form another failed daily cycle and continue the intermediate cycle decline. That aligns with oil being in a daily downtrend.  Oil will remain in its daily downtrend unless it can close back above the upper daily cycle band.

Is Oil Running Out Of Steam?

 
Oil still has not formed a recognizable daily cycle low.

The decline into the day 38 low failed to turn the 10 DMA lower, so we did not label day 38 as the DCL. The same thing happened with the decline into the day 46 low. Since the day 46 low, oil as trended higher while bearish divergences developed on the oscillators. Monday was day 52 for the daily oil cycle. That places oil late in its timing band for a daily cycle decline. We will use a close below the daily cycle trend line to indicate the daily cycle decline.