Another Look at Crude Oil, the Dow Theory Double Non-Confirmation and Gold
In late June I posted an article here explaining that Crude Oil was in an unsustainable parabolic spike. Then, on July 15th I had a short-term sell signal that immediately evolved into a sell signal of intermediate degree. The question now is whether or not this intermediate-term sell signal further evolves into marking an even longer-term top, or if it is a mere correction in the path of an even longer-term advance. Monitoring the Cycle Turn Indicator at the various levels will be key at answering this question.
Below is a long-term chart of crude oil showing the 1,322 percent advance that occurred from the 1998 low, at 10.35, into the recent high at 147.27. Since the July 11th high, crude oil dropped 23.77 into the most recent low. This decline in and of itself does not necessarily mean that crude oil has also made a longer-term top. But, given the nature of the recent parabolic spike along with some of the other statistical factors that I'm watching, this is indeed a window of opportunity. The key item for me at this point is whether or not this intermediate-term decline is successful enough to also turn my monthly Cycle Turn Indicator negative. Also, the other key element is whether or not this occurs within the statistical window surrounding the entire commodity complex that I have been watching and telling my subscribers about for months now.
Since we are on commodities, I next want to briefly discuss gold. In doing so I am also going to show you how my Trend and Cycle Turn Indicators can be used to help identify primary and counter-trend moves. The chart below is a weekly chart of gold, which I use for my intermediate-term work. I have also included both my intermediate-term Trend Indicator as well as my Cycle Turn Indicator. If we begin at the low last August, note that both the Trend and the Cycle Turn Indicator were negative as that low was made. Then, the first week in September both indicators turned up as gold began to climb out of the cycle low that was associated with that price low. With the Trend Indicator positive, this told us that the longer-term trend had turned back up. As price continued to move up, note that the Trend Indicator remained positive all the way up into the March high capturing that entire advance. When the Cycle Turn Indicator turned down at various points along the way it was signaling counter-trend cyclical moves within the context of the longer-term up trend. Then, when the Cycle Turn Indicator turned back up another buying opportunity was confirmed. To say this another way, the fact that the Tend Indicator remained positive during the downturns, seen by the Cycle Turn Indicator, told us that these dips were buying opportunities.
But, once the Trend Indicator rolled over below its trigger line in late March it told us that the trend at this level had turned down. This also told us that as long as the Trend Indicator remained negative that any rally was to be considered a counter-trend move. The week of July 18th the Trend Indicator came within a hair of crossing back above its trigger line. However, this crossover never quite materialized and this past week the weekly Cycle Turn Indicator turned negative. As a result, the current picture suggests that the May to July rally was a counter-trend affair at this level. Until the Trend Indicator turns back up, the trend at this level remains negative and any bounce must still be considered a counter-trend move.
As for equities, from a Dow theory perspective we still have a mixed bag. The longer-term primary bearish trend change that was confirmed on November 21, 2007 remains intact. This confirmation occurred when the blue horizontal line on the chart below was jointly violated by both averages. Since that violation both an upside and a downside Dow theory non-confirmation has evolved. The upside non-confirmation occurred when the Transports moved above their previous secondary high point and ultimately into all time new highs in June, but with the Industrials failing to better their previous secondary high point this upside non-confirmation was born. To clarify, this upside non-confirmation is marked in red and has a bearish bias that until corrected will remain intact.
At the same time, we also still have a downside non-confirmation, which is noted in green. This downside non-confirmation occurred when the Industrials moved below their previous secondary low point, while the Transports held above their corresponding secondary low. Downside non-confirmations are indicative of an upside reversal, which is now underway.
To date, the November 21st bearish primary trend change remains intact and takes precedence over everything else. The upside non-confirmation is also bearish. But, the downside non-confirmation was last to occur and given the fact that non-confirmations tend to indicate trend reversals we must also respect this fact as well. At present, price is advancing out of what I believe to be a secondary low point. From a Dow theory perspective, the key is whether or not this advance is sufficient enough to invalidate the existing primary bearish trend. From a cyclical perspective, which has nothing to do with Dow theory, the key is the cyclical structure of the market and the Cycle Turn Indicator at the intermediate and longer-term levels.
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