Oil (WTI) potential 20 week trough bounce in progress?

Everyone knows oil has been very bearish over the last few months. What are the cyclic reasons for this? Firstly, lets look at the long term picture from the trough in 2009, weekly candles:

longtermI believe the main cyclic factor at play here is a straddled 18 month trough in September of last year. When a large trough is negated and price falls rapidly past that trough it is a sign of very bearish sentiment. In this case price only rose for a couple of weeks before collapsing past the low. There is a chance the 18 month is still to come but I believe this analysis looks favourable so I am working from it going forward. Note also the 4.5 year (54 month) VTL has been breached to the downside indicating the peak of a 9 year cycle has formed. Add in this to the straddled 18 month trough and we can conclude fairly confidently oil will be long term bearish until the next 9 year trough. That does not mean, however, that long trades are out the window…

Looking closer in there is a potential 20 week bounce to get in on:

longterm2As I type this WTI is trading at around 44.9. The 20 week trough has to hold or I will be taking a short below it for some more bearish action. I am not expecting much from the bounce but will hold for the first 20 day cycle at least. Note price has broken the downward sloping 40 day VTL (blue line), indicating a trough of 80 day magnitude has formed. A cross of the 80 day downward sloping VTL (light blue) would confirm a trough of at least 20 week has formed here.

longterm3Chart above shows elapsed lengths from the most recent 20 week (18 month) trough and last 80 day which formed in early November.

So, in conclusion, looks favourable for a short term long trade but I am cautious. I will take a small position on a break of a smaller scale VTL, probably 5 or 2 day.


  • Chris

    It has taken me some time to digest the info from your post on HS– but I’ve come to favor this earlier positioning of the 18 month trough. The service didn’t imply that the 18mth was established earlier, whereas sentient did. I will reserve judgment until I know more but think your scenario on this page must be more accurate. This recent bounce has just been very weak. The service contemplates being well through C leg. I think I am going to go ahead and trial software- though I still have a lot to learn– might as well start getting my feet wet. Even if the 18 month trough was postponed- I can see from here the longer term bearish implication. This is good, thorough information you are creating here and I thank you.


    • Hi Chris, thanks for your comments. I think Oil is now due for the D category interaction and we will see from there. Bear in mind I have used an expert model to place that 18 month trough and it is still possible that the recent bounce IS the 18 month. Its all about probabilities though and I favour the straddled trough, especially with the strong move down. If you have not already get yourself a copy of ‘mastering hurst cycle analysis’ by Chris Grafton, its a great book for Hurst.

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