XLE vs. BRT and the OIL reversal

BRENT broke down below our anticipated supports. After prices broke down 50, the pause up was short lived. Prices are down till 37 now. This is a deeper retracement by all mean and even puts our PREFERRED (SLIDE 5) 4 circle wave view under doubt. Before we discuss any alternate scenarios, we would still like to review a potential turn on OIL from here.

A few reasons, BRENT vs. XLE is the classic intermarket linkage between equity and it’s underlying commodity. This has been explained by John Murphy in his book on intermarket analysis. Where he talks about a non confirmation between equity and its underlying commodity before a reversal in trend. What we have witnessed last few trading sessions, is a classic non confirmation between equity based on OIL and OIL prices. Though OIL has fallen over the respective period, CHEVRON, EXXON and XLE (Energy ETF) have witnessed a rise, the classic non confirmation.
We at Orpheus go a step ahead and analyze the cycles between two assets, in this case BRENT and XLE (SLIDE 1). Brent has an outperformance and underperformance cycle of an average 28 months. This cycle is coming to an end. All lows on this cycle have suggested a bottom on Brent. One can call it coincidence, but if you do the same exercise with CVX and XOM against BRENT (SLIDE 17), we get a similar result. This means that we may indeed have a strong case of reversal still pending on OIL. Above all this we have also updated the report with BRENT primary and intermediate time cycles (SLIDE 3,4). We would really not want to ignore so many aspects pointing at a reversal. It’s always a tough call, catching a bottom. But a positive price confirmation above 40 would be our first reversal signal, to turn from a DOWN BUT BOTTOMING back to UP. The alternate view on the other hand also has a primary multi year conventional support coming in at 37-35 and considers the retracement as a CYCLE II degree correction, which should also turn up eventually.
ORPHEUS GLOBAL RESEARCH
WAVES.OIL is a perspective product published once a week. The report covers BRENT, WTM, XLE (Energy SPDR), top energy stocks, Natural Gas and related FUTURES. The product highlights Primary (Multi Month) and Intermediate (Multi Week) price trends. The report illustrates key price levels, price targets, price projections and time turn windows. The product uses Elliott waves, traditional technical analysis tools and sentiment indicators.
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