Crude oil is one of the most widely traded commodities and besides its use for fuel and energy; oil-based products or its by-products find their way into every facet of our lives. Its price is affected by the economic backdrop as well as political and climatic developments.

Carrying out analysis based on fundamental, political and climatic effect is beyond my ability and resources. However, studying price charts and applying varying approaches of technical analysis could give us some clue of its likely future behaviour. That being said, it is subjective and the actual path, extreme pivots or turning points may vary from the ones we anticipate. Nevertheless, it can still be useful in developing a general roadmap for planning future trades and can be a useful educational exercise in live analysis of the market.

So with that caveat, to start with, we can make some general observations from the chart above as follows:

1. Crude Oil made a historic high in July 2008 at just over $140 when many analysts from well known investment institutions were calling for oil to reach $200.

2. Then the price dropped so sharply in less than 6 months and formed a low at $32.40. It retraced some of that decline forming a high around $114.83, taking almost 2 and half years. Chart paints a clear picture showing that since then, it has struggled and been developing lower highs and lows and the cycle still appears to be in progress.

3. Last major low was formed in February 2016 at $26.05. It is noteworthy that as we were approaching that low, there were analysts calling for oil to drop to $10. I published a chart explaining why we are likely to find a low around $25 and if we drop below that, it is likely to remain well above $20 and could bounce to around $60 over several months.

4. We are now at the threshold of $60 and some are anticipating oil to attain $70 - $80 and even $100. Is this likely, though, or just wishful thinking?

Timing Analysis– let's address the timing element to see when the next turn is likely to form:

5. In the chart above, I have marked several periods, which show that there are time symmetries, where a period measured from high to high, high to low, low to low and low to high are similar in length. It is not necessary for such time symmetries to be reflected in immediate swings to the right or left. They can, however, form in alternate swings or even move further way in price progression. For Crude oil this is around 42 – 47 weeks, which is approximately twice the 23 week drop from 2008 high. Therefore 42 -47 weeks appears to be the natural rhythm of the oil cycle. From the February 2016 low to January 2017, we have 47 weeks. If we project 47 week from January 2017 high, we get a Nov 2017 as possible turning window.

6. Similarly, the correction rally from February 2016 appears to be similar in proportion to the rally from 2008 low to 2011 high, which took 147 weeks. 78.6% (fib ratio) of that period gives us approx 91 weeks. So from February 2016 low, projecting 91 weeks lands us in early November 2017.

7. So, 2 different time measurements (described in 5 & 6 above) gives us November 2017 as potentially, an important time window for anticipating price reversal.

Price Analysis – Next, let's explore the price zone where a potential reversal might form:

8. Still referring to the chart above, we note that we are approaching bearishly trending 200 SMA & EMA around $60, which might act as potential resistance.

9. In addition, the rally from February 2016 to present, has retraced some of the price drop from May 2011 high by 38.2% (a common Fib retracement), which is around $60.

10. Using the On Balance Volume Oscillator (OBV- highlights buying and selling pressure) in the middle window, we note that compared with the price leading to intermediate high in January 2017, the current price has formed a new higher high, yet the OBV is still at much lower level. This could suggest that the buying pressure is getting weaker and likely to exhaust soon, forming a potential price divergence from OBV.

11. In the lower window of the chart, we have 2 lines. A green line represents the net position of the Large Speculators, who are net long in crude and is at the extreme level in proximity of the high posted in January 2017. Both of these peaks are at historic extreme levels suggesting an unparallelled bullish expectation of the future crude price by Large Speculators, with historically high levels of Open Interest. Any Speculators still short on crude will be squeezed out of their positions and many new ones might take long position assuming that we have a price breakout.

12. However, the overall daily trading volume has been falling since Mid July, indicating that more than likely, it is the shorts who are squeezed out of their position is the main reason behind the increasing Net Long noted in the chart.

13. These types of Commitment of Traders data (COT) are often very helpful when they are at their extremes and the price is at an important level such as the one we have at present. This is similar to its use in my analysis of February 2016 low mentioned earlier.

14. Using traditional Technical Analysis, in the chart below we note that we have previous significant price highs and lows that have formed at $60 as structural support/resistance and which might turn into resistance on its approach to that level this time round again.

15. Similarly, there are 2 trendlines, one from 1998 low, connecting higher lows and one from 2006 high, picking up alternate significant pivots, both converging to current price level. Such converging lines have in the past, on occasions acted as significant inflection points.

16. In the chart below we close in to the current price zone on Daily Time frame and note that several Fibonacci projections and extensions cluster in the $60 area.

17. 5 Period Relative Price Index (RSI) is approaching at 90 and can be considered as a level where rallies might get exhausted.

18. Similarly, the bottom window of the chart shows ADX in brown line which is around 40 where previous rallies have often ended.

19. In addition seasonally, crude is in bearish cycle that continues into late December.

Conclusion:

From the above we have explored that:

a. We have potential price reversal timing window of November and probably earlier to mid November.

b. Previous structural supports might become resistances and trendlines converge to the current price, which might become an inflection point

c. Various Fib retracement, projections and extensions form a cluster around $60 and might form resistance.

d. Momentum Indicators such as RSI and ADX are at levels where rallies often get exhausted.

e. Seasonally, crude experiences price weakness till late December.

f. COT data suggest extremes in bullish sentiments on the part of Large Speculators (similar to the extreme bearish view in the February 2016 low) which, in the past have often marked significant highs(lows) if not the major high. However, it should be remembered, that this is a historically extreme level which might support the idea that a major high might form.

g. If this is a major high being formed, then we are likely to see retest of the $45 -$40 area as an initial target and in due course, the February 2016 low.

Action:

1. We should be on the lookout for an indication of a reversal in price. This can be in the form of a bearish candle on daily time frame. There are several potential candles that might form, such as bearish engulfing, harami or a shooting star etc... before considering a short entry.

2. If not trading oil directly, then oil related EFTs can be used.

3. Stocks in Oil & Gas exploration and Distillers can be suitable candidates for shorts, such as CVX, XOM and COP as oil majors.

4. Keep an eye on position size to ensure that overall position is acceptable for your risk tolerance.