Crude Oil - How low will it go ?

Crude Oil WTI (USD/bbl 59.95)

Crude oil (WTI) future closed at $59.95 on Thursday. It is forming its wave 3 currently.

In 2011, wave 1 dropped by 34%. If I apply a fibonacci ratio of 1.618 to its wave 1 percentage drop, its wave 3 is likely to end at $55.00. Wave 4 rebound is likely to fluctuate between $55.00 and $80.00 for the next few years.

This is purely an academic exercise for me.

It is interesting to note that the peak for crude oil was in April 2008 which is lagging behind the Dow's peak at October 2007 by 6 months. Whereas its bottom in December 2008 is ahead of March 2009's Dow bottom by about 3 months.

It is also interesting to note that from April 2011 to Dec 2014 when the crude oil price moved side way, Dow moved from 12,400 to 17,958 for a 45% gain.

Assuming Roubini is right, it is possible that the current setback for Dow is just a higher degree correction. For the next 2 years if the crude oil price really moves side way fluctuating between $55 and $80, Dow may gain another 45%. Anyway if crude oil price can stabilize say around $70 a barrel in 2015/2016, it should be good for the world economy. Assets bubble may not burst so soon.


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FBMKLCI - At the tail end of major wave 4

FBMKLCI (1,765)

KLCI rebounded strongly today to form the mini wave iv of wave 5 of c of its major wave 4.

The final mini-wave v of 5 of c is always unpredictable, it can cut short its journey with a failure, it can also have a very damaging final shakeout.

If Dow can hold until 2016 as what Roubini has said, KLCI will have time to complete its major wave 5 next year or may stretch until year after next.

 

 The end of major wave 5 may also mark the end of mega wave (5).

Dow (17,533)

Dow Dropped another 268 points (-1.5%) to 17,533 on Wednesday.  At this point, Dow has the possibility of forming either sub-wave ii, wave (xiv), major wave (6) or mega wave 2.

Based on magnitude comparison, it is possible to rule out sub-wave ii. As I have illustrated previously, at the previous peak of 17,958, wave (xiii) has gained 11.4% which is about the same magnitude as wave (v) (+12%), (ix) (+12%) and (xi) (+11%). At that time I was assuming the mini wave 5 could complete its 5 minor waves of i, ii, iii, iv and v and I gave a projected level of 18,300 for wave (xiii) (+13.5%). But, due to strong downward momentum, wave (xiii) failed at minor wave iii with minor wave v missing.

If I ruled out sub-wave ii, at best, Dow is going for its wave (xiv) for an 8% drop to 16,500 level.

And if Dow goes for its major wave (6) correction, then it is going to be a 15% pullback to 15,250 level.

And of course, the worst case scenario is 'the bubble has burst', then, a minimum drop is about 40% to 10,600 level or a maximum drop of 63.5% to 6,547 level, which is the starting point of mega wave 1 for a 100% retracement.

My current wave count for FBMKLCI should be able to hold if Dow goes for its wave (xiv) correction. However if Dow is forming either its major wave (6) or its mega wave 2, I will have to revise my wave count for FBMKLCI.

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Dow - Mini wave 5 has ended

Dow (17,801)

Stocks declined sharply at the opening bell on Tuesday but recovered strongly after the oil price bounced back from a 5-year low. It closed at 17,801 for a 51 points drop (-0.3%)

With this drop, I have ruled out the diagonal mini-wave 5 that I mentioned yesterday. I am more inclined now to treat the last record high of 17,958 as a failure mini-wave 5.

If mini-wave 5 has ended, the immediate question is on the magnitude of the current correction.

If Nouriel Roubini is correct

If Nouriel Roubini's last Thursday (4th Dec) statement that 'the asset bubble won't pop until 2016' is ultimately proven right, then the current correction is either a 3% sub-wave ii pullback or an 8% wave (xiv) correction.

If Marc Faber is right

Marc Faber has been talking about a major correction of 20% or more (so is Tan Teng Boo of i-capital) in the last two years. Last month Marc Faber told CNBC, "I will soon be proven right". If Dow is heading for Marc Faber's direction, it is likely that either the major wave (5) or the mega wave 1 has ended.

Under this scenario, a major wave (6) correction is expected to be about 15%, that is a 2,700 points drop to 15,250 level.

The worst case scenario is a mega wave 2 correction where I would say, the assets bubble has burst. If we are lucky, mega wave 2 will go for a 40% drop to Dow's previous major wave (4) low of 10,655 level for a 7,300 points drop. If we are unlucky, mega wave 2 can go for a 100% retracement  to where mega wave 1 started, the 6,547 level - March 2009's low.


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Dow - Has mini wave 5 ended ?

Dow dropped 106 points to 17,852. The up trend after mini wave 4 has only 3 minor waves, is Dow going for a 3-3-3-3-3 diagonal wave 5 ?

Or is it a failure mini wave 5 ?

If it is indeed a failure mini wave 5, then the question now is whether that marks the end of sub-wave i, or it is the end of wave (xiii). It is also possible that major wave (5) or the mega wave 1 has ended.

Dow has reached a very crucial turning point. Must monitor very closely.


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Weekly Update

Dow (17,958)

Dow continued with its mini-wave 5 and has another record closing on Friday. How high will it go before the bubble burst ?

Marc Faber, 'Dr. Doom' has been expecting 'a major correction' for two years, but the market has instead moved up by more than 30%. One year ago, Roubini changed his view from bearish to bullish and he said on Thursday that 'the asset bubble won't pop until 2016'.

For me, I will be very very cautious at every possible major turning point and be prepared to run for my life. The next possible major turning point is at the end of mini-wave 5.

FBMKLCI (1749)

KLCI is at the tail end of wave c of 4.

Hopefully next week KLCI can form the wave iv of c.

KSL Holdings Bhd (Rm 4.26)

On Thursday KSL issued an amended announcement to clarify that the dividend per share after the 1 for 1 bonus issue shall remain at 5 sens. This is equivalent to a 10 sens dividend per share before ex-bonus.

If my reading is correct, the next wave up will be the sub-wave iii of wave (v) of major wave 3.

Berjaya Corporation Bhd (Rm 0.435)

BJCorp continued to set new low on Friday. Hopefully its bear run since 2010 can end with the completion of mini-wave 4 and 5.

Priceworth International Bhd (Rm 0.175)

Hopefully my reading is correct and PWorth can end its major wave 2 with the completion of mini wave 4 and 5.

If this major wave 2 ends at 16 sens level, then it is a 100% retracement wave. However, if it punches through the 16 sens level, it means only one thing, my wave count for PWorth all this while is wrong, I will need to review my whole wave count, just like the mistake I made for BJCorp.

Whatever happen, as long as the monthly log production figures for PWorth is in an up-trend and can reach 100,000 cu.m a month by 2017, this stock can be a goldmine. However if the asset bubble does burst in 2016, don't hold any stock, even if it is a potential goldmine.


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Assets bubble burst in 2016 ?

Roubini : We're in an asset bubble and it won't pop until 2016

Roubini, "Next year we'll see economic growth and easy money. This frothiness that we've seen in financial markets is likely to continue from equities to credit to housing." He believes that valuations in some markets are already stretched and will continue to stretch until seeing a shakeout around two years down the line, in 2016.

Click 'It won't pop until 2016' for the report.

Dow (17,900)

Dow is forming its minor wave ii of mini wave 5. If the magnitude of mini wave 5 is the same as that of mini wave 1, mini wave 5 may end around 18,300 level. Will that be the end of wave (xiii) ?

The % gains for wave (i), (iii), (v), (vii), (ix) and (xi) averaged about 15%. Wave (xiii) so far has gained about 11%. If it can move up to 18,300, wave (xiii) will gain about 13.5%. It is possible for wave (xiii) to end there.

If Roubini is right and the market can last for another 2 years, it is possible that the next pullback after wave (xiii) is the major wave (6) correction of around 15%. However, if the next pullback is less than 8%, then it is more likely to be the wave (xiv) and major wave (5) has not ended yet, it is continuing its run with wave (xiv), (xv), (xvi) and (xvii), the next possible ending point for major wave (5).

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FBMKLCI - Revised wave count

FBMKLCI (1,758)

KLCI dropped 27 points (-1.5%) today to go below the crucial 1,768 level, its October low. With this development, even though the magnitude of wave iv rebound is of much bigger than that of its wave ii rebound and even though this wave iv also overlapped into wave i, the alternative wave count I can come out is as shown below.

I have changed my previous wave 4 from the earlier a-b-c-d-e formation to a-b-c formation.

A possible low for wave c of 4 is 1,686 level, the bottom of wave (iv) of 3.

KSL has announced that the ex-date for its 1 for 1 bonus issue is 17th December and the 5% dividend will be adjusted accordingly to 2.5% after the bonus issue.


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