Fibonacci Turn for Oil Right on the Target

06/28/2017 2:59 am EST

Focus: STRATEGIES

Jeff Greenblatt

Director, Lucas Wave International, LLC

Next week will be a short week. It may be short but the drama will resume Wednesday as everyone has to exercise patience to see how this health care situation plays out, asserts Jeff Greenblatt, director of Lucas Wave International and editor of The Fibonacci Forecaster.

Last week sentiment in oil turned hot as the media told us it was in a bear market. It was reported here oil was at a key inflection with the black gold at 377 calendar days off the June 2016 high right on the seasonal change point.

It turned the very next day, right on schedule. For technicians and bulls, the turn can be categorized as better than expected.

Let’s dissect the action under the hood. The first thing to look for is the how the behavior stacks up against the last thrust to the low which some people call the other shoe that drops. Whatever the case, it’s the first real resistance challenge. This one did well not to retest the actual bottom. On Tuesday at Fibonacci 89 hours off the bottom, the best bears could muster is a small triangle. By Wednesday it had already taken out the last thrust line. For good measure, I put an Andrews channel on it because it is the best indicator of underlying intraday strength.

chart

As you can see, oil made it to the upper channel early. In non-linear terms, that means it has reached the path of least resistance which is now up. While we may not have a long-term low in oil, the verdict here is in the least, it is a developing trading leg on the long side.

In the past week, we can also see how conditions can change on a dime. The story last week was Amex Biotechnology Index (BTK) and health care. The Trump administration decided the best route to take concerning the drug makers was to push for price reductions via slowing then eliminating regulations. The industry cheered the move because it was a departure from campaign rhetoric which suggested Trump might opt for price controls like Nixon did. The next day the Senate unveiled their version of health care.

The market cheered again and quite frankly it would be tough to take the market down with the drug companies moving north. They got their leg but it stalled.

Then the one thing the market feared came upon it. The one condition the market dreads reared its ugly head. Had conditions followed the path from last week, we may very well have experienced another of those buy the rumor, sell the rally sequences. The Senate originally scheduled the health care vote to take place on Thursday. The next time window is Wednesday which is 161 trading days off the beginning of the Trump rally from early November. It may very well have rallied into this sequence and profit-takers may have come in on Thursday.

But conditions did not run their normal course as the market always seems to throw a curve ball. As last week ended, 5 GOP senators could not support the bill. That meant the vote had to be canceled this week.

When the news leaked out the Emini got hit as a single 1-minute bar on the YM dropped 21 points on Tuesday. That’s a lot and it proved a direct correlation with the news going public. You know the drill by now. The market was promised tax reform this year which is already baked in the Trump rally. But we were also told no tax reform until health care is done.

Since Washington can’t get much done, they may have already proven David Stockman a prophet in addition to his ability to dissect government finance.

With the early drop this week, markets opened the door to the 161-day window inverting to create a low instead of a high. As soon as markets got hit, the market had three chances to find a low, from days 161-63 on Friday. Tuesday’s losses were quickly wiped out Wednesday morning. The higher probability is the cycles did invert.

Now we are left with early holiday volume and traders looking to get out of Dodge to enjoy the July 4th weekend.

Next week will be a short week. It may be short but the drama will resume next Wednesday as everyone has to exercise patience over the holiday to see how this health care situation plays out.

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