Few weeks back oil (NYMEX:CLX13) reversed sharply from the $112 high when a five wave rally from $91.00 area completed a larger degree of an extended wave 3. As such, the contra-trend reaction is called a corrective retracement that is now unfolding but maybe near completion. We are tracking red wave 4) that may look for a support around 50% Fibonacci retracement level compared to wave 3); that’s one of the most important Fibonacci levels when you are looking at a reversal point. It’s also important to know that the $92 figure represents invalidation level of our bullish forecast, because wave 4) must not fall into the region of a wave 1).
On the 4h chart below we can see that oil extended its weakness after recent sell-off from the $108 zone at the end of the last week. Current bearish leg will delay an upward bullish structure, but it does not change the larger picture that suggests that move from the top is corrective; an A-B-C retracement in wave 4) that could look for a completion in $101-$103 zone, at wave C - wave A equality level. This has already been tested so bounce in price could be near.
If you are one of the patient traders, then you will wait on the bottom to form first, before you may start to consider long entries. So from a confirmation and trading point of view it would be nice to see an impulsive upward reaction back to the $106 level to confirm a change in trend; from a bearish corrective retracement up to bullish continuation.
Elliott wave traders will know that impulse is a five wave pattern that occurs in the direction of a larger trend, so only this type of a rally can put bullish waves back in control. In such case traders could be interested in long opportunities.