The bulls are back in town! And, they've been spotted hang'n around their old stomping ground: the "Crude Oil Bar and Grill."
To wit: On December 5, Wall Street presented its latest commodity forecast -- a bullish one, led by a 3-to-12 month rally in crude oil.
Like most published Wall Street reports, this one is based on "fundamentals." The December 5 crude oil forecast hinges on a "tight supply" picture.
That brings back memories of the not-too-distant past. In mid-2008, similarly bullish forecasts were being made for oil, too -- based on similar factors: a widely-expected increase in demand from China, for one. Here is a typical 2008 news clip:
"Crude oil rose to new, all-time highs as [Wall Street] raised its prices outlook… saying 'the possibility of $150-$200 per barrel seems increasingly likely over the next six to 24 months.' This is a market that wants to go higher… No one wants to bet against [WALL STREET]." (The New York Times, May 16, 2008)
YET: From its July 11, 2008, peak of $147 oil plunged 80% -- together with most commodities AND the stock market -- missing the $200 per barrel price target by a long shot.
From an Elliott wave perspective, here's why that uber-bullish 2008 crude oil forecast fell flat: "Fundamental" analysis usually extrapolates existing trends into the future. It's not equipped to see a trend change until it's too late. Oil was rising strongly in 2008, and from a "fundamental" perspective, there simply was no reason why crude prices would reverse. In fact, the supply and demand picture was very, very bullish in 2008...much like it is today.
To see the 2008 top in crude beforehand, you needed a different forecasting method. Elliott wave analysis, for example, made a very different forecast for crude back in 2008 by examining the objective, internal measures of oil prices: Elliott wave structure, Fibonacci price targets, momentum and sentiment.
“Two key topping indicators are still evident: extreme bullish sentiment and relentless media attention. Possible third and fourth signs -- volatility, and cries for more government regulation of commodity trading -- are rearing their heads… It all points to a very mature uptrend.”
With crude breaking above $100 a barrel, more and more bulls are citing the old familiar reasons why oil should keep rising.
You have a choice: To follow the herd, or get an independent perspective on crude -- one based on the same metrics that called oil's top in 2008.
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