Charts Show Crude Oil Correction Still Has Legs

Charts Show Crude Oil Correction Still Has

 Traders work in the crude oil and natural gas options pit on the floor of the New York Mercantile Exchange.

I was actually chuckling to myself when so many market “experts” were scratching their heads and wondering why oil simply dropped out of the sky when so many were expecting the rally to continue.  I have heard reasons from “fat-finger,” to a “technical glitch,” to a rise in supplies, to some comment by an “unnamed” Saudi official concerned about high prices in oil.
The question I am surprised I did not hear, but which is begging to be asked, is “how can a commodity, which should be propped up by unlimited QE, drop in such a strong manner?”  Maybe Ben has just not gotten around to write that check yet?
As an aside, this is the danger in QE, in that it creates a false sense of security.  The common perception is that it can and will prop up markets forever.  But, once the markets hit a significant top and begin a massive drop into 2014 and 2015, the portion of the investment community which maintains this  “common” perspective will probably be hurt the most as the market simply continues to drop.
The following note in an article that I read probably approached the truth of the matter more so than any other analyst I have seen:
Analysts at JBC Energy Research Centre said in a note Tuesday that the fact that a selloff occurred for both Nymex crude and Brent “implies that this was no technical glitch, but rather a profit-taking strategy by major market participants that were worried about a price correction.
If this analyst actually took it one step further, he would actually say that the truth of the matter was that the market had completed its pattern, and sentiment was due for a turn.
In my weekend report to subscribers two weeks ago, which was the last time I updated on USO, I noted the following:
“Therefore, as long as that region is held as support, we may still expect a target of at least 37 to be hit.
“But, please notice that the technicals on the USO are not exactly pretty.  The MACD had broken down below its long time uptrend channel, and has been hitting its head on the underside of the uptrend channel.  Meanwhile, the long term declining trend line on the MACD has been dropping and is not too far over the uptrend line either.   So, this does make me question how high the USO can go on this next run up.  So, I will be on the look-out for potential truncation around the 36 region, but will otherwise maintain the 37 target. . .”
USO topped at 37.39, and we had a very strong reaction to the downside, which made it quite clear that the top has been hit.  As in the pattern with the dollar, we are unsure if we have bottomed in the a-wave in 3 waves down, or have one more low to hit to complete the a-wave in 5 waves.  Again, since a-waves in a corrective decline can be either 3 waves or 5 waves, it makes it more complicated to analyze corrections at the start of the correction.