COMMODITY VIEW.  Oil Rally Begins.  Elliott Wave theory, originally produced by R. N. Elliott in the early 1900s, and now carried forward by Bob Prechter, past #1 market guru, basically says Elliott waves or complete market movements come in threes.  Well, to more accurate, Elliott says movements really come in fives, three in the prevailing direction, and two counterswings in the other direction.  Right now I see three distinct and obvious movements downward in oil and other commodities.  Meaning I see a complete movement just finished.  So now I have to expect a move in the other direction, a rally upward in oil.  For chart lover’s edification, and to see what I see, the three legs down are as follows. 

Complete Elliott Wave Movement.  The 1^st leg lower off the July 3^rd, 2008 crude oil top ended roughly August 12^th.  After a minor sideways counterswing upward until August 29^th, oil, and commodities in general, began their 2^nd legs down with a gap lower the next day and continued downward to September 16^th, where the second counterswing rally upward began.  This lasted for only a few days, until September 22^nd before the 3^rd leg down began.  Starting September 22^nd, oil, and commodities in general, fell along with most everything else financial in the rare forced panic right through to the bottom on October 27^th.   So we now have a complete three legged or Elliott Wave decline in place.

Schwartz View:  At this point then I expect some type of oil and general commodity rally, which has already begun, beginning six days back.  Maybe going hand in hand with a general stock market rally.  But remember, there’s no saying oil can’t just keep on falling after this pause or rally attempt ends.  We could easily soon start another whole new movement down in oil.  But, bottom line important, this is the price and time point where it’s logical to play for a rally if one’s so inclined.  I am so I took a small position in oil on Monday on the dip which took oil back down but not down below its October 27^th lows.  Then yesterday we had a big up day in oil after which we were left posted a higher high.  Add that to a higher low the day before and over the last week we’ve quickly met the definition on an uptrend, a series of higher lows and higher highs.  Thus traders might want to take note and mirror me, using the next decline, oil’s down as I write this morning, to do so as long as we don’t break the old crude price lows.  As for additional reasons oil why oil may have finally found its leveling off price, crude at its recent low was down a Fibonacci number, down very close to 61.8%.  Normally a great point to expect a bounce.  Plus hedge fund commodity deleveraging might just be ending along with the thawing and maybe long awaited ending to the horrific credit crisis.  Finally, just use some common sense.  No matter how poor the US and  global economy gets, a certain amount of business is still going to need to be done..  And with no progress made in freeing ourselves from oil over the last 30 years, no matter what I want and believe will is on the way to happening, it’s not going to occur overnight.  Oil is still going to have to be utilized for years to come; why not a rally to some leveling off point, say maybe at about 50% off its highs or in the low $70s? 

Disclaimer!  I own a little oil with small positions in Rydex Oil & Gas Ultra (RYEIX) and in ProFunds Energy (ENPIX).