Saturday, October 18, 2008

>$200 oil: How could have oil experts gotten it so wrong?

Hi Friends,
A nice explanation of greed , fear,optimism and trader psychology,Go through the following Article which explains about the 5 wave structure of OIL with corresponding events unfolding.
Read it and try to recollect what was going through your mind during that phase of oil bull run:).

Three months ago, you couldn't swing a baseball bat in a crowd without hitting someone screaming that the world was running out of oil.

But after reaching a record high of $147 a barrel in July, oil fell as low as $68.57 (on October 16 -- Ed.) – a 50% decline. Before oil slipped below $70, "Goldman Sachs, among those predicting $200 a barrel oil, cut its year-end forecast of oil to $70…" (AP)

How could have "those predicting $200 a barrel oil" gotten it so wrong?

"To be fair, there is always a tendency in parts of the analyst community to look at short-turn trends and assume it’s something that will continue in perpetuity,” commented on the situation an analyst with the International Energy Agency.

Exactly. Isn't projecting short-term trends into infinity the definition of every financial bubble?

Avoiding such predicaments is precisely what Elliott wave analysis helps you accomplish. A study of market psychology, the Wave Principle helps you find psychological extremes in market charts – and then, ideally, forecast a change in trend before it occurs. A priceless advantage, indeed.
Here's how Elliott wave analysis could have helped you navigate around the oil bubble. On June 4, 2008 – still a month before oil's all-time high – Steve Hochberg, editor of Elliott Wave International's Mn-Wd-Fri Short Term Update posted this chart

Later, on August 11, 2008, The Short Term Update wrote:

Oil is down 23% from its July high. [This] chart was published in the June issue of The Elliott Wave Financial Forecast and shows our call for a top. Prices traced out five waves from the December 1998 low and carried to just above the upper line of an unorthodox parallel trend channel. Optimism was at near-record levels and the president of OPEC stated (shortly thereafter) that, “prices won’t come down.” It was a very strong confluence of conditions that indicated a reversal.

Near term, prices have closed lower the past two days, which is interesting in that if there ever was a fundamental “reason” for oil to shoot higher, it is Russia’s invasion of Georgia. I believe that they even shut down a pipeline. When psychology reaches an extreme and the trend turns, all the supposed reasons pundits cited as to why prices were rising matter little. Nearly all were rationalizations to begin with, and the change in psychology exposes their flaws.

And that brings us to today. Here's an update on that oil chart from the June 2008 Elliott Wave Financial Forecast:

Now that oil has dropped 48% from its July peak – into the forecast area of "the previous fourth wave" – we may see market sentiment reach a low extreme. What will that mean for oil going forward?


Source :-Elliott wave international


Post a Comment