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The Oil Top Is Forming


An oil top is forming. The last (April 21) posting regarding the oil price indicated that there would be a high in late April. I wrote, “The annual high for any April is on the 22nd. The high for the monthly cycle is on the 27th and the weekly cycle high is on April 20th. So, the high for this price rise will likely be between the 20th and the 29th.” At this juncture, oil hit a high quote at $66.60 on April 23rd, and has fallen by 8% since that time.

The analysis begins with a view of the static cycle, the annual cycle. We can see that the oil price has passed through the most bullish months.

Chart 1-Oil Price Annual Histogram (from 1983)

Oil has entered a seasonally weak period.

Cycles Research Investments LLC

In order to complete the study, one must consider the dynamic cycles. The weekly cycle falls in the coming week.

Chart 2- Weekly Oil Cycle

The weekly cycle declines in the coming week.

Cycles Research Investments LLC

The monthly cycle has hit its peak for 2019.

Chart 3- Monthly Cycle

The oil price has been following the monthly cycle down.

Cycles Research Investments LLC

The oil price high was on time, according to the cycles, as we see below.

Chart 4

A top is forming.

Cycles Research Investments LLC

Sentiment is more supportive of a top. Since April 18th, put writing versus call writing has risen by 20%. Thus, option writers are becoming more bullish as oil has pulled back. Sentiment is a contrary indicator, so increasing optimism is likely to be met with disappointment in the form of lower prices.

I can add that the $65 price level was cited as the 61.8% retracement of the prior rally and the likely price target for this run. This level has been achieved. The $55-$56 level is the next reasonable downside objective. We will likely see the largest oil decline in 2019 over the coming months.

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