R.N. Elliott masterfully combined security price movements with human sentiments to come up with a technical charting technique now known as the Elliott Wave Principle. His thesis is simple. Prices react not only to supply and demand fundamentals, but also to greed and fear psyche.
There must be more than a few high volume crude traders following the Elliott Wave patterns this year, as text book waves are clearly marking crude's price direction.
Elliott Wave theory likens price movements to ocean tidal patterns. Price movement flows are charted in 5 low and high tide ebbing patterns. Pretty cool. The problem is that in the short term this writer has not been accurately able to see the beginning and end of each wave. However, longer term the picture evolves more slowly and clearly. And thus more useful for trading setups.
This week crude peaked at high tide wave B at $88.8 (78.6% retracement) and consistently withdrew or ebbed off high tide wave B. This sets up a larger out going tide C move lower. $85 is a key congestion support area going back to May 2010. A break below support brings crude down to lower $80's.
House traders will be carefully monitoring this out going C wave tide to try and hop on the low tide and ride it up shore on wave D. Told you this was cool stuff.
Last week the news was full of stories on higher crude prices. These stories are likely to be true in the longer run, but for now crude appears to be obeying R.N. Elliott's Wave thesis for a bit of a pullback.
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