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October 3, 2012

Current Call: Buy Crude Oil

Cycle analysis is currently showing a favorable setup for entering a long crude oil trade. Oil's daily cycles typically span 1.5 to 2.5 months. With the previous daily cycle low (DCL) occurring in late July, crude appears to be in the process of forming a low at the far end of its timing band.

Crude oil daily cycle chart

Currently oil is testing its potential DCL, offering a low-risk opportunity to enter positions with a stop marginally below last week's low. The terminating daily cycle also formed as right-translated, meaning its peak was to the right of the middle of the cycle, time-wise. Right-translated cycles are bullish and are typically followed by a cycle that sets a higher high. In other words, once oil finds its DCL and rallies into a new cycle, the $100 peak from the previous cycle should be exceeded.

Furthermore, oil is only 14 weeks into its weekly cycle. Since the weekly cycle typically runs 25-33 weeks, the cycle is still young and should hold another right-translated (bullish) daily cycle.

Crude oil intermediate cycle chart

I am currently long oil and will continue to follow the development of this trade in the Member Letter where it was first highlighted last week.


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