I’ve been reading a lot of bullish talk about crude oil lately and I think there might be something to it. However, I for one will probably hold off on jumping on the bullish bandwagon for just a little while longer.
One The One Hand
Figure 1 displays the spot price for crude oil with key support and resistance levels highlighted. Until price breaks out of this range, all predictions are just that – predictions.
Figure 1: Courtesy ProfitSource by HUBB
Figures 2 and 3 show weekly and daily crude oil charts with the Elliott Wave counts. Note that the weekly put in a Wave 5 bottom a while back and the daily is now suggesting an impending 5th wave up.
Figure 2: Courtesy ProfitSource by HUBB
Figure 3: Courtesy ProfitSource by HUBB
The caveat here is that EW wave counts can and do change and the counts presented in Figures 2 and 3 in no-way guarantee that a rally is in the offing. But Figures 1 through 3 do illustrate why there is a lot of “bullish talk” regarding crude oil.
On The Other Hand
The historical performance of crude oil suggests that this may not be the ideal time to pile onto the bullish side. Figure 4 displays the Annual Seasonal chart for crude oil futures since they started trading in 1983.
Figure 4
It is important to note that Figure 4 is NOT a roadmap and that prices do not simply follow this pattern year in and year out. Historically, through, crude has been a very seasonal market and it often is useful to know whether the current predominant seasonal trend is up or down. The seasonal trend has been up since mid-June – which as you can see in Figure 3 coincided with the most recent low in price.
The next significant seasonal period is bearish and extends from the close on October Trading Day #9 (which is Thursday 10/12) through the close on December Trading Day #8 (which is Tuesday 12/12). As with any seasonal trend there is no guarantee that crude will decline in price between these dates. Still, consider the historical performance of crude oil during this period as displayed in Figures 5 and 6
Figure 5 – $ gained (lost) holding a long 1-lot position in crude oil futures from Oct TDM 9 through Dec TDM 8 (1983-present)
Figure 6 displays a summary of crude-oil performance during this particular seasonal period.
Figure 6 – Crude oil performance; Oct TDM 9 through Dec TDM 8 (1983-present)
Summary
Please remember that I am not urging anyone to play the short side of crude. I am merely pointing out why I am hesitating to play the bullish side. Crude oil has historically been one of the more reliable seasonal markets. But remember that nothing can be counted on 100%. Even the highlighted awful, terrible, no good, very bad October into December period has seen crude show a gain almost 30% of the time.
The bottom line: If the bullish case plays out I will miss an opportunity. Nevertheless, and despite what anyone may say, investing and trading really is about playing the odds. For the next several months, the odds appear not to favor crude-oil bulls.