Why Chevron (CVX) and Copper, and many other commodity related items are going to rally big! (by Sid from ElliottWavePredictions.com). Click on the charts twice to enlarge.
So often, Elliotticians see 5-waves down from a major high and immediately assume that the new trend direction is down. However, this is not always the case. Not by a long shot.
Consider the highly common “expanded flat”. Although they are corrective by nature, when an expanded flat occurs during an uptrend, price appears to move down from a significant high, perhaps even an all-time high (in the case of Chevron), in a clear 5-wave impulse structure. But one must consider the price action prior to the top before calling the trend change! As you can see on the weekly chart below, prior to the all-time high on July 25, 2014, the prior all-time high in July of 2013 was just slightly lower that the 2014 high. And very importantly, up from the October 2008 low, Chevron moved up in a 5-wave impulse into the July 2013 top. That high was followed by a 3-wave downward pink abc (for blue A), and then an aggressive (but corrective) structure to the new all-time high in July 2014 (for blue B). Notice the blue Fibonacci measurements on the chart. The length of the (blue B) rally into the 2014 top was exactly 1.382 times the length of the initial move down from the 2013 high (labeled blue A). Ding! Ding! Warning Bells! Wave B’s of expanded flats are most commonly 1.382 times the length that wave A was. Since an expanded flat subdivides 3-3-5, the 5-waves down from the July 2014 high is therefore highly likely to be wave C of a flat that started in July 2013. CVX also stopped going down at two key supports: the exact .382 retracement of black wave 1, and the extreme of wave 2 within the preceding extended 5th wave.
Additional support for the idea that Chevron has put in a significant low are threefold:
1) Hurst cycle analysis (by Sentient Trader software) considers the recent December 16 low as a very large 18-month cycle trough;
2) The incredibly aggressive move down in Crude Oil since July 2014 is very likely a terminal thrust from a multi-year triangle. (Thrusts from triangles are quite aggressive, but once they are done, they’re done. A significant trend change to the upside is therefore likely to occur in oil quite soon); and
3) Many other commodities appear to be putting in the final touches to multi-year downward corrective patterns. Case in point: Copper. (see chart below) . .
Back in April 2007 thru December 2008, Copper got hammered, (along with about everything else), but bottomed after completing only a 3-wave structure. As a matter of fact, that structure came in the shape of another expanded flat. Out of that late 2008 low, Copper rallied in 5 waves clear waves (outlined in red on the chart) to new highs through February 2011. Since that high, Copper (and Gold, Silver, Platinum and the AUD/USD currency pair, (among other commodity related items), have chopped downward in very similar, clearly corrective structures. The Copper and AUD/USD charts look almost identical, and have finished (or very nearly so) a black WXYXZ structure to current levels. Once again, Hurst cycle analysis considers that all of these items are putting in large 18-month cycle lows here in January.
The conclusion: Because the up move from Dec 2008 thru Feb 2011 in Copper was a 5-wave impulse, and that was followed by clearly corrective downward movement to about the .618 retracement level of the original impulse, A NEW 5-WAVE IMPULSE TO ALL-TIME HIGHS IS EXPECTED IN COPPER. It will be a companion wave C to the wave A up from 2008-2011.
News flash . . the highly correlated AUD/USD pair appears to have bottomed within the last couple of days, and has broken out of its downward price channel to the upside. See chart below . .
One last note . . If commodities are going to rally starting about now to all-time new highs, I don’t see how US stocks can simultaneously put in a horrific crash. Inflation should keep assets generally moving to the upside . . at least during most of the inflationary period. Stocks are likely to eventually top before commodities do, as heavy inflation will gradually overwhelm the underlying economies, but that appears to be at least a couple of years out. I am therefore switching my main and alternate counts around for US stocks, with the main count moving forward being less long-term bearish. In the intermediate term, I now prefer a count that expects a 5-wave structure to the upside starting in 2009 (instead of just an ABC), with wave 3 of that impulse not quite complete yet. This long-term count change does not alter the roadmap of the shorter-term (trade-able) price and date targets, as shown in my weekly “Counts” webinars for many weeks.
For a complete weekly explanation and rundown of my multi-timeframe wave counts and associated Fibonacci price targets for many of the world’s major stock markets, commodities, currencies, and bonds, please join me for my weekly “Counts” webinar. Hurst cycle analysis is considered on virtually all items. Subscriptions can be done one-week at a time, monthly, or annually (at a discount). Broker “Soft Dollars” are also accepted as payment from professional money managers. A recording of the webinar is made available to all subscribers, whether they are in attendance “live” or not. All webinar subscribers will also receive my Sunday and Wednesday EWP ScreenShots as a bonus.