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Crude Oil Prices & the Fiscal Cliffhanger
While the mainstream news items on crude oil & the fiscal cliff are constantly changing, Elliott wave analysis of crude oil remains an objective constant.

By Nico Isaac
Wed, 26 Dec 2012 18:45:00 ET
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On Dec. 26, crude oil bulls woke up to find a post-Christmas present beneath their investment tree: a 3% rally in early trading that lifted prices to their highest level in 2 months. 

As for what caused crude prices to kick it into HIGH gear? Here, one Dec. 26 news source offers the following explanation:
 
            "Oil jumped unexpectedly on hopes for a last minute deal to avert a US fiscal crisis."
 
This isn't the first time the mainstream experts have reeled in this very big fundamental fish -- errrr -- fiscal cliff. They've been catching it on their line every day for the last several months, only to toss it back in the water and re-snare it over and over again.
 
The problem is, while the actual fiscal cliff event itself remains the same, people's perception of it is constantly changing. Here, this batch of recent headlines captures the continuous flip-flopping:
 
·         Fiscal cliff is bullish for crude oil: "With Fiscal Cliff Approaching, Investors Send Crude Higher" (Minneapolis Star Tribune)
 
·         Fiscal cliff is bearish for crude oil: "Oil Slips as 'Fiscal Cliff' Draws Near" (CNBC)
 
·         Investors see swift resolution to fiscal cliff drama: "Brent Strong on Optimistic Fiscal Cliff Hopes" (International Business Times)
 
·         Investors see no resolution: "Oil Falls on Fading US Fiscal Cliff Hopes" (Reuters)
 
·         Crude oil brushes off looming fiscal cliff: "Crude Oil Ends Above $90 Even As Fiscal Cliff Worries Continue to Reign" (Associated Press)
 
If you look closely at the order of events in each of the headlines above, you can't help but see a certain pattern emerge: Price action drives the nature of the news. Case in point: When crude oil prices rise, the fiscal cliff is either deemed bullish OR a non-event.
 
Then, when crude oil prices fall, the fiscal cliff is deemed bearish.
 
Elliott Wave International President Bob Prechter observed this very flaw in fundamental analysis when he wrote in his February 2010 Elliott Wave Theorist:
 
"None of this activity fits the accepted exogenous-cause argument," that being that news drives price trends.
 
Now let's go back over the Dec. 26 surge in crude oil prices with the fine-toothed Elliott wave comb. On Dec. 24, EWI's Energy Specialty Service's daily analysis of crude oil presented the following price chart of crude oil with this commentary:
 
"So far there are only 3 waves down to Friday's low so prices will have to move below the 87.96 session low to confirm that a larger downtrend has indeed begun. But should prices exceed the 89.42 level it would warn that another leg up above 90.54 is needed. If that happens, a possible target is [above 91.00]." 
 
 
 
To summarize Energy Specialty Service's analysis:
 
·         87.96 acted as critical near-term support for further decline.
·         89.42 acted as critical near-term resistance and would signal the start of a near-term rally.
 
Now that crude oil prices have met their initial upside target above 91.00, where will they go next? To answer this question, EWI's Energy Specialty Service provides the most objective and comprehensive analysis of the near-term trend under way in crude oil. Get the full story today via a subscription to the premier, trader-focused Energy Specialty Service today. 
 

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