Crude Oil Couldn't Care Less About "Fundamentals"

Instead, here's historic evidence it adheres to Elliott waves

By Elliott Wave International

If there's one financial market that investors evaluate based on "market fundamentals," it's crude oil.

This Feb. 10 Reuters news item provides an example:

Oil may resume its rally in 2023 as Chinese demand recovers after COVID curbs were scrapped and lack of investment limits growth in supply, OPEC country officials told Reuters, with a growing number seeing a possible return to $100 a barrel.

Of course, whether the price of crude oil rises to $100 this year remains to be seen. The point is to show you a typical forecast based on "fundamentals."

Yet, over the decades, there have been scores of crude oil forecasts based on "fundamentals" which have simply not panned out. Indeed, quite a few times, prices will move in the opposite direction from the consensus of the "fundamentalists."

However, Elliott Wave International has observed that crude oil tends to follow Elliott wave patterns of investor psychology.

Let's look at a historical example. Back in 2008, crude hit an all-time high of almost $150 a barrel. Predictably, the mainstream saw more upside; calls for $200 a barrel were common. But here's a chart from our June 2008 Global Market Perspective with the "5" wave label (indicating an Elliott wave end to oil's rise). The commentary from that issue is below the chart:

The fifth wave has carried to the upper line, which signals that the rally is nearing an end. Oftentimes, prices will "throw over" the upper channel for a brief period.

As you can see at the bottom of the chart, the Daily Sentiment Index (courtesy trade-futures.com) revealed that 90% of traders were expecting oil's price to keep rising. Many energy observers were citing "fundamentals" as the reason why. Meanwhile, both Elliott waves and sentiment agreed: A major top was near.

Indeed, a dramatic "throw over" did occur as crude oil topped a little more than month later. Prices then plummeted 78% in just 5 months, as this chart shows:

Mind you, no analytical method can offer a guarantee about a financial market, and that includes the Elliott wave method.

That said, Elliott wave patterns are far preferrable to "fundamentals" as a way of anticipating crude oil's turns and trends.

If you'd like to learn how the Elliott wave method can help you in your analysis of financial markets, read Elliott Wave Principle: Key to Market Behavior -- the Wall Street classic by Frost & Prechter. Here's a quote from the book:

Although it is the best forecasting tool in existence, the Wave Principle is not primarily a forecasting tool; it is a detailed description of how markets behave. Nevertheless, that description does impart an immense amount of knowledge about the market's position within the behavioral continuum and therefore about its probable ensuing path. The primary value of the Wave Principle is that it provides a context for market analysis. This context provides both a basis for disciplined thinking and a perspective on the market's general position and outlook. At times, its accuracy in identifying, and even anticipating, changes in direction is almost unbelievable.

If you'd like to read the entire online version of the book, you may do so for free once you join Club EWI, the world's largest Elliott wave educational community. A Club EWI membership costs nothing, yet members enjoy complimentary access to a wealth of Elliott wave resources on investing and trading without any obligation.

Become a Club EWI member now and enjoy the benefits, including free access to Elliott Wave Principle: Key to Market Behavior (just follow this highlighted link to get started).

This article was syndicated by Elliott Wave International and was originally published under the headline Crude Oil Couldn't Care Less About "Fundamentals". EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Gold: What "Colossal" Central Bank Buying May Mean

"Central banks are so confident that gold prices will continue rising that they are..."

By Elliott Wave International

Central banks have been scooping up gold with a vengeance.

Here's a Jan. 31 Financial Times headline:

'Colossal' central bank buying drives gold demand to decade high

Interestingly, just a few days later on Feb. 3, the precious metal dropped by more than 2%. But setting aside near-term price moves in gold, what you need to know is that government is nearly always the last to act on a financial trend. In other words, when government acts, a financial trend is either nearly or already over.

In the case of gold, consider that central banks were furiously buying it in mid-2011. As you may recall, gold had been strongly rallying. Well, just three months later in September of that year, gold hit a top and fell 46% during the next four years.

Going back in history a little further to around 1999 and 2000, there was the gold selling episode which amusingly came to be known as "Brown's Bottom" -- referring to Britain's Chancellor of the Exchequer at the time, Gordon Brown.

Brown was fervently selling from Britain's gold reserves after gold had been in a multi-year downtrend.

You no doubt know the rest of the story: After Brown's gold selling, the precious metal then entered a multi-year uptrend.

But let's get back to the present, namely, an instructive chart and commentary from our recently published February 2023 Elliott Wave Financial Forecast:

Central banks are so confident that gold prices will continue rising that they are committing generational amounts to its purchase. Central bank behavior is not a short-term timing tool, but it does provide key input for judging sentiment, which appears strongly bullish.

If you would like to get near-term analysis of gold, as well as more of this broader perspective, you can find it in Elliott Wave International's flagship Financial Forecast Service.

Or you can apply Elliott wave analysis to gold's price chart yourself -- as well as other financial markets.

If you're unfamiliar with the Elliott wave model, read Frost & Prechter's book, Elliott Wave Principle: Key to Market Behavior. Here's a quote:

The practical goal of any analytical method is to identify market lows suitable for buying (or covering shorts) and market highs suitable for selling (or selling short). When developing a system of trading or investing, you should adopt certain patterns of thought that will help you remain both flexible and decisive, both defensive and aggressive, depending upon the demands of the situation. The Elliott Wave Principle is not such a system, but is unparalleled as a basis for creating one.

Learn more by reading the entire online version of the book for free. That's right -- you can access Elliott Wave Principle: Key to Market Behavior for free once you become a member of Club EWI -- the world's largest Elliott wave educational community.

A Club EWI membership is also free and members get complimentary access to a wealth of Elliott wave resources on financial markets, investing and trading.

Join Club EWI now (no obligations as a member) by following this link: Elliott Wave Principle: Key to Market Behavior -- get free and instant access.

This article was syndicated by Elliott Wave International and was originally published under the headline Gold: What "Colossal" Central Bank Buying May Mean. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.