August 13th, 2014
by Poly, Zentrader
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Crude is clearly locked into an Investor Cycle sell-off and traders know it. The massive speculative Long positions that accumulated during the preceding months are now working against the traders that took them. Crude's normal ebb & flow is firmly in a downward stage, and even though it's many weeks and $10 into a decline, Crude does not appear to have completed the move.
If Gold should have found this geopolitical environment bullish, then Crude should have found it to be outright explosive. The ISIS group is on the verge of taking control of key oil producing regions in Iraq, the Russian/Ukraine theater remains a hotbed, the West is threatening sanctions against Russia, Russia is threatening sanctions in return, and the Middle East is again at war. Despite these developments, Crude has not been able to manage even 2 consecutive winning sessions.
When we break down Crude's recent action, it's clear that July 15th was certainly a DCL, which marks the current DC at Day 18 of a typical 40 day Cycle. The last Cycle ran long by 15 days, so we should expect a shorter-than-normal Cycle at present, one of perhaps 25 to 30 days. But even a Cycle that short provides at least a week until the next expected DCL, leading to the view that Crude has further to fall.
The weekly chart is oversold to the extent that we could have seen an ICL this past week. Plus, at 35 weeks since the last ICL, the timing is right. But Crude loves to move in extremes, and the lack of upside response to significant geopolitical developments leads me to believe that the Daily Cycle count needs to run its course before we see an ICL. Sentiment and COT data also show that traders are just not bearish enough for an ICL, which is why it's prudent to stick with the trend and expect more downside.