Has Oil Bottomed yet?

Transcription

1 November 14, 2014 Has Oil Bottomed yet? Oil has bottomed intermediate-term. The next move is a bounce to the area of at least $100/barrel within a span of ~12 months. Once that upside completes, oil will reverse to continue its longer-term decline to trough below per barrel. Below you see the Diag II (Bearish, Diagonal Triangle type 2) in process of a wave iv upside, within wave C, of an A-B-C Wave II correction. Page 1 of 5

2 Above is the big picture, monthly chart you see the continuous contract of West Texas Intermediate Crude since Wave I peaking in 2008, indicates the beginning of a longer-term Bull Market, however in the interim Wave II, will correct Wave I to trough below the 2009 low. A solid foundation for the subsequent Wave III rocket launch requires that all gaps in the chart be filled-in before a rally to new highs approaching $210, can begin. Below in the weekly chart, you see same count since 2009 magnified. You can easily find your bearings between the two by reconciling wave B. Earlier this month the wave count completed satisfactorily just above $80/barrel, followed by the customary a-b reversal, to preface the rally in crude back up, above $100/barrel. Oil is priced in US Dollars. Since June 2014, the $US has rallied over 7%, so the 20% drop in oil prices in 2014 has been cushioned by the rapidly rising dollar. Page 2 of 5

3 A Bear Market Rally in Oil Rather than a Bull Market in oil, this is a Sucker s Rally in Oil to coincide with the Crash in US stocks & Bonds. As you see in the hourly magnified view of the 2009 a-b upside reversal, this identical pattern replays in every reversal, its magnitude is proportional to the subsequent rally or plunge. Below you can see that the previous reversal from the Wave A trough left a gap at This is the minimum long-term low for West Texas Crude. As Nobelist, Robert Shiller states in Irrational Exuberance, nothing is natural about measuring prices in dollars, when the quantity, and value, of those dollars has been highly unstable. (quantity & value have been inflated by Fed-propelled Dollar, Equities & T-Bond Bubble) In other words, since 2000 the Fed has abandoned the greenback & eroded its value by printing dollars in attempts to inflate the US economy out of a deflationary recession. The dollar remains valued on its reputation as a Safe Haven currency, rather than on any realistic valuation, based on the Federal Page 3 of 5

4 Government s ability to tax. Further recession, will serve to plunge tax rolls, concurrent spiraling costs of social services. See the long Dollar index chart with this link. When US stocks & bonds crater, (& soon) foreign investors will exit their dollardenominated investments en mass, plunging demand for US dollars, while concurrently creating high demand for nearly all foreign currencies, especially the uro. Faced with a precipitous decline in the Dollar, the uro will likely become the primary repository for Chinese sterilization funds. Intent on minimizing Chinese inflation, sterilization is the process of withdrawing excess export-sourced liquidity from the Yuan circulating in China, precisely the opposite tactic as the Fed. In a knee-jerk flow of funds, capital will flow out of US into the uro, Emerging Markets & commodities, namely oil & gold. Below you see the CRB commodities index bottoming in wave ii of 5 waves up to complete wave 2C. Bottom line: There is a terrific opportunity to Swing Trade Oil & Gold. Rather than a Bull Market, this is Bear Market Rally, which is optimally traded by scaling-out a partial position once the herd stampedes into the asset, and waiting for the price to drop back Page 4 of 5

5 to get back in. Done over and over, this strategy compounds wealth faster than any other. This is what we do best at Exceptional Bear. To view our Public Stockcharts, containing the Big Picture perspective for many asset classes click here. Eduardo Mirahyes Page 5 of 5