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📉 WTI Crude Oil: Identifying the Corrective Rally (June 2019)

Title Image - WTI Crude Oil Elliott Wave Forecast and Analysis - 190613

Based on the price action up to June 13, 2019, the market structure suggested a key phase of the downward movement was recently completed, setting up an immediate counter-trend rally.

The Completed Decline: Blue Wave 3

Our analysis indicated that the market successfully finished Blue Wave 3 of a larger structural decline. This impulsive downward wave found its bottom at $50.59 per barrel on June 5, 2019. According to Elliott Wave rules, following a third wave—which is often the most aggressive move—a corrective fourth wave must unfold.

Setting Up the Reversal: The Blue Wave 4 Correction

Now that Wave 3 is complete, the focus shifts entirely to the corrective rally of Blue Wave 4. This move is expected to take the price higher, acting as a temporary pullback before the final decline (Blue Wave 5) begins.

In terms of targets, Elliott Wave theory offers clear guidelines for corrective wave placements:

  1. Primary Target (The Fibonacci Zone): A common stopping point for a Wave 4 correction is the 38.2% Fibonacci retracement level of the preceding Wave 3. This level often acts as strong overhead resistance. We should look for the price to move up towards this zone.
  2. Key Constraint (The Non-Overlap Rule): The most critical rule governing Wave 4 is that it generally cannot overlap the territory of Blue Wave 1. The high of Blue Wave 1 acts as a hard ceiling for this current correction. If the price were to move past this level (near $60.00), the entire Elliott Wave count would be invalidated, and we would have to assume a much larger bullish reversal is underway. Therefore, we expect the rally to stay below the Wave 1 high.

Based on these guidelines, the technical targets for this counter-trend rally were expected to be in the $55.60 to $57.00 range.

💡 Short-Term Trade Strategy: Trading the Correction

This setup presented an opportunity for buyers willing to take a tactical, short-term long position, anticipating the relief rally of Wave 4.

The strategy here is to trade against the primary trend to capitalize on the structural pullback:

  • Entry: Buyers could consider entering from the price level around the time of the analysis (near $51.00 - $52.00) or aiming for a clear break toward the upper target zones.
  • Tactical Targets: The rally was expected to reach and potentially test the $55.60 and $57.00 levels, providing clear profit objectives within the Wave 4 structure.
  • Risk Management (Stop Loss): Given the importance of the Wave 3 low, the safest place for a stop loss was placed just below it, near $50.75 (or ideally, below the actual Wave 3 low of $50.59). A break below this point would signal that the corrective Wave 4 had already failed or that the larger Wave 5 decline had begun prematurely.

By targeting the Fibonacci and rule-based resistance areas, traders were looking to capture the bulk of the Wave 4 move, preparing to reverse their position to sell once Wave 4 completed and the final Blue Wave 5 decline began.

🛑 Understanding the Risk of Trading Corrections

While this Wave 4 rally presented a clear opportunity, it's crucial to acknowledge the inherent difficulty and risk involved in trading corrections:

  • Counter-Trend Risk: This was a trade against the larger prevailing downtrend (the Wave 5 drop was still expected). Counter-trend moves are often choppy, volatile, and harder to predict than impulsive moves.
  • Shallow Correction Risk: Wave 4s can sometimes be much shallower than anticipated. If liquidity is low or sellers remain aggressive, the price might fail to reach the 38.2% Fibonacci target, completing the correction quickly and starting the Wave 5 decline unexpectedly early.
  • Geopolitical Volatility: Crude oil prices are highly susceptible to sudden news from OPEC, geopolitical tensions in the Middle East, or unexpected inventory data. A major fundamental shock could easily override this technical Wave 4 structure entirely.

Therefore, discipline in exiting the trade near the target zones and adhering strictly to the $50.75 stop loss was paramount to protect capital during this tactical, counter-trend setup.

Quote of the Day

“The smartest trade is not the fastest one — it’s the one made with clarity, not emotion.”

Crucial Risk Management Advice

Crucial Advice: Effective trading is based on disciplined risk management, not prediction certainty. Always use a firm stop-loss to protect your capital. Macroeconomic news, particularly from the Federal Reserve or the European Central Bank, can override any technical pattern instantly.

Profile Image of Ghulam Muhiuddin, Certified Technical Market Analyst, 18 Years of consistent market analysis and forecasting</strong>

About the Author

Experience: This analysis reflects the insights gained from 18 Years of consistent market analysis and forecasting, specializing in the application of the Elliott Wave Principle and advanced technical structures.