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Oil was one of the weakest markets for the past few trading days. Today is down more than 1.50%, despite US dollar weakness that we are seeing across the board, driving by higher stock market. However, on the next Daily overlay chart between the S&P and oil prices you can see that these two markets (S&P and Oil) were trading higher in the similar manner already since August, which however is not the case for the past few trading days. Could this bethe first but very important evidence of a coming top on the US stock market?!

Oil S&P Elliott Wave
Oil S&P Elliott Wave - Click to enlarge

Guest post by Gregor Horvat

Some analysts or traders will say that Oil prices are lagging behind that that will turn back higher and catch the stock market very soon. Well, if you are using Elliott Wave Theory, then you know that top on oil is likely in place around 93.00 region.

On the 4h chart below we can see an ending diagonal pattern which suggests that top is in place, since wave (5), final leg of a pattern already formed a required sub-wave structure and exceeded a previous blue wave (3) highs. A powerful reversal from the highs with a recent break through the lower side of a pattern definitely suggests that top is in.

Oil Elliott Wave January 25
Oil Elliott Wave January 25 - Click to enlarge

As we know an ending diagonal is a special type of wave that occurs primarily in the fifth wave position or in wave C of a corrective rally (like in our case) at times when the preceding move has gone too far too fast. And as such, in most cases the result is a powerful turning point, a sharp reversal against the previous trend. So do not be surprised, if you will see prices much lower in days and weeks ahead. Here is also the basic structure of an ending diagonal

Because of lower oil prices during today’s sessions you didn’t see US dollar weakness against the Cad while Aud/Usd per example exploded towards parity. So, with more Oil weakness ahead, which is definitely expected, Canadian dollar will likely lose some of its value in coming days, especially if S&P futures will turn lower as mentioned above, and support the US dollar!

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