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Crude Oil, Natural Gas & More: How to Spot High-Confidence Junctures

Look for Elliott wave patterns for clues about the market direction

by Alexandra Lienhard
Updated: October 17, 2017

Steve Craig, our Chief Energy Analyst and editor of our Energy Pro Service, tells you how he stays on top of the ebbs and flows in energy markets. (Spoiler alert: Keeping an open mind and following Elliott wave rules is a good start.)


Alexandra Lienhard: Today on ElliottWaveTV, I have Steve Craig joining me by phone. Steve is Elliott Wave International's Chief Energy Analyst and edits EWI's Energy Pro-Service. And now Steve, despite the flows and fluctuations around hurricane season, the Iran deal is back on the front burner, and despite all this crude is still generally speaking range bound. Does this surprise you?

Steve Craig: Well, it's not what I was anticipating when the market turned down in early 2017, but it happens. It's the nature of the beast. From an Elliott perspective, 11 of the 13 patterns are corrective. Unfortunately, the one that ultimately develops isn't telegraphed in advance. This means you must keep an open-mind, follow the ebb and flow of the price action, to narrow down the possibilities. Eventually, a high-confidence wave count out will emerge.

AL: And is there any momentum in the market,or signs that momentum is about to build in a particular direction?

SC: Momentum is measured by the relative strength index, has been trending higher of late. It's particularly evident from a weekly perspective. Since it's nowhere near an overbought extreme, the market has plenty of room to run. And you can make the same case with market sentiment. As Elliottitians, of course, we're always looking for wave patterns for clues about market direction. The extensive period of range-bound trade that you alluded to, Alex, came after the initial run from the 2016 low in February up to June 2016 peak. One of the most basic tools of any form of technical analysis is the trend line. When you apply them to the period in question, it's easy to make the case of the triangle, which is a common corrective pattern, ended at the late August low. Triangles tell us a lot about what to expect next. For starters, triangles always precede the final leg of the wage structure at the next higher degree of trend. Once the triangle ends, the ensuing price move, or thrust in Elliott terminology, develops in one of two ways. Short and sweet or long and drawn out. The latter would look even more proportional, and I'm leaning that way, but you cannot rule out the former. So again, you need to keep an open mind and follow the rules and guidelines of the Wave Principle as the price action unfolds. Once the thrust out of the triangle has run its course, you'll then be able to count the corrective advance from the 2016 low as complete, which is even more useful information.

AL: And Steve, are the products such as heating oil and unleaded likely to follow?

SC: Heating oil looks much the same as crude, as does Brent, by the way. Since heat and Brent have both posted new 2017 highs, I don't think crude's triangle is still developing even though it's still a possibility if you're wondering. Unleaded is off on its own tangent, but I suspect you will see it trend in a similar manner.

AL: And what about natural gas and its ETF, the UNG? We often see strength heading into the high-demand winter season. Are we likely to see it again this year?

SC: Natural gas is traced out a similar pattern to WTI. There's no confirmation just yet, but you can easily make the case that it's multi-month period of sideways consolidation is a triangle. If so, the ensuing thrust should be the up side.

AL: Well Steve, thanks as always for taking a couple of minutes to talk today. I appreciate it.

SC: Always a pleasure, Alex.

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