by Vadim Pokhlebkin
Updated: March 08, 2017
It finally happened.
On Wednesday (Mar. 8), crude oil prices saw their biggest one-day decline of 2017, down more than 5%.
Why do I say "finally"? Because this "explosive" price action has been in the works for a while.
For more than three months, to be exact. This chart from our Energy Pro Service shows you that since late November-early December, crude oil prices made zero progress in either direction (partial Elliott wave labels shown):
During this period, opinions were split on what oil would do next. On the one hand, production cuts that the OPEC (and non-OPEC) nations promised back in November were becoming a reality -- a bullish factor. At the same time, doubts lingered on whether the cuts would amount to anything significant, in terms of new supply coming to the market.
Yet, even commodities are not always driven by supply and demand. There is also collective psychology to consider. Market players will often buy or sell despite the news; even in the absence of news.
Perception is reality, as they say. If market participants perceive the trend as bullish or bearish, they'll often stick with perception over evidence -- the pull of the herding impulse can be that strong.
So how do you know which way collective psychology is leaning? Follow the waves.
For the past few weeks, as crude oil prices treaded water, our Energy Pro Service editor Steve Craig kept telling subscribers that Elliott wave price patterns continued to suggest a downside resolution to the long consolidation.
On March 7, one day before the prices tumbled, Steve wrote (excerpt; partial Elliott wave labels shown):
[Posted On:] March 07, 2017 04:02 PM
-- Lower lows should lie ahead. WTI climbed a bit higher, but whether the countertrend retracement from last Thursday's 52.54 low has run its course remains to be seen. Trade below 52.54 (maybe 53.02) should be a good indication that it has and that the next leg of the decline is underway.
So, when you hear someone blame the sudden sell-off on a rise in the U.S. crude inventories, keep in mind that they'd been rising for nine weeks straight, and it didn't upset the crude oil rally in the slightest.
What finally changed was the collective psychology of the oil market players -- the change that Elliott wave charts warned about days and weeks in advance.