On when the ‘Energy Crisis’ will end: Saturday 16 October 2021

Bought crude oil on the dip into the top of the accumulation range identified in late-July here (https://kudakwashe-chinhara.medium.com/wti-crude-oil-friday-23-july-2021-373c8c0aff3f). The market has since rallied over 30% and the map I am using raises some very interesting points for the next few months.

The regime model flipped out of “Sell the Rip” on the breakout and has been stable in “Buy the Dip: Amber” since thus suggesting defensive longs.

Figure 1: Hydra Regime Model output

Figure 2: Hydra Regime Model for USO in 2021

The next cycle beat of interest lies somewhere in the middle of Q1 2022. Prior to that, a minor beat is likely in Nov/Dec of this year. Therefore, crude may have more to run on the upside for a while.

Figure 3: WTI Crude Oil with cycle overlay

The potential targets from the TP Analyzer are shown below.

Figures 4 and 5: Resistance levels from TPA

How long could a run-up last? The Elliott Wave analyst in me says the latest leg up from August is a 5th wave…that means it is a terminal move.

Figure 6: Elliott Wave scenarios for Crude

Hang on a sec though…terminal at which degree? That is the billion-dollar question…

Figure 7: Longer-term Elliott Scenarios for Crude

Also, consider the fact that the 2007/08 terminal 5th-wave trough-to-peak TRIPLED the price of crude! The peak of said 5th-wave was also nearly double the peak of the preceding 3rd-wave (hard to forget when you lived through it as a young trader on The Street). All the TP resistance points only temporarily stalled prices. Commodities tend to top on FEAR. Fear of scarcity…hence tops can become parabolic/blow-off and then they are followed by equally dramatic corrections. The best cure for high prices seems to be even higher prices.

Figure 8: Anatomy of a 5th-wave blow-off top in Crude into 2008

Bottom Line: Staying long through limited-loss structures. This story could get very dramatic much like 2007/08. Should the regime model flip back into the red, I will be fairly aggressive about getting explosive downside structures into the portfolio. In that potential future, imagine crude more than halving from north of 90/100.