Let the role-playing exercise begin:
Susie-The-Very-Confused-Investor: "You guys always said that energy moves opposite of equities. Yet, over the last few month, both crude oil AND the U.S. stock market have plunged together. What gives?"
Fundamental Expert (very calm): "See, Susie, there's a faint line in the sand where the negative correlation between oil and stocks breaks down as growing economic woes reduce the demand for ALL assets -- including energy."
Susie: "But if you guys can't see beforehand when the market is about to cross that line, how am I supposed to?"
Expert: "Got me. I just work here."
Harsh? Maybe. But also, true. Fact is, when crude oil prices were rocketing to never-before-seen heights back in July 2008, the mainstream pundits saw no end to the red-hot winning streak in black gold. Here, the following June-July news items say all:
- "The catalyst for [oil's] rise came when the US reported an unemployment rate of 5.5% in May – the biggest rise in 22 years. It is still a bull market in oil." -- Financial Times, June 7.
- "…And energy supply is not adequate for growth. That's why the price of oil is not going to come down sharply." -- United Nations conference, June 30.
- "The simple truth is that cheap and easy oil is gone. Oil could reach $300 if the U.S. does not curb its 'addiction.'" -- T. Boone Pickens, oil baron. July 3.
- "Supply is struggling to grow worldwide and the feeling is oil prices have to rise to choke off demand. I don't see any barriers to further price rises." -- New York Times, July 3.
Today, crude oil prices stand just above $50 a barrel, their lowest level in 22 months.
As for seeing the reversal in crude's fortune BEFORE its footprints appeared on the other side of that "fine line in the sand" -- the June 2008 Elliott Wave Financial Forecast has the honor. In that publication,our team revealed that the deeply entrenched panic surrounding crude oil bore the classic marks of a mania on its last legs. In the words of the June EWFF:
"If there is a fly in our forecast for an imminent break in the economy, it is crude oil prices. The oil chart offers a complete, or nearly complete, bull market pattern. The rally is reaching an end… after which a strong and sustained decline ensues."
Closely behind, Bob Prechter's June 9 Elliott Wave Theorist set the stage for energy's coming slide and wrote:
"I am publishing this issue a bit early in order to alert you to an opportunity developing in the oil market. Oil is due to peak soon and join gold and silver on the downside. One of the greatest commodity tops of all time is due very soon.”
After hitting an all-time high on July 11, crude oil turned down in a violent, four-month long selloff that has slashed more than 60% from its value, so far. And, right now, the November 17 Short Term Update (online now) clears out some extra space exclusively to address the near-term trend changes in store for crude oil.
First off, Short Term Update revisits the dramatic close-up of crude presented in the June Elliott Wave Financial Forecast that showed a "Gusher of a Top" in the making -- and picks up where the original chart left off. (Some wave labels have been removed for this publication)
The first thing that pops out is the classic, five-wave pattern that carried prices to their historic peak. The second detail is available to our Short Term Update subscribers: a telling second panel of the 60-day Daily Sentiment Index among crude investors.
The lines are clear. A major move is near. Get the full story today with the Short Term Update.