SINGAPORE: Brent oil may be bound within a range of $66.22-$86.70 per barrel next quarter, due to the completion of a five-wave cycle from $15.98.
The uptrend from $15.98 observed closely a set of retracements on the preceding downtrend from $147.50. Oil failed to break a resistance at $81.74.
The failure was followed by a sharp correction, which appears to be a pullback towards a falling trendline. However, when put in a bigger picture, the pullback could be indeed a wave (a), the first wave of a correction from $86.70.
This is because the uptrend from $15.98 could be well divided into five waves.
The correction against this trend is expected to last longer, consisting of three waves.
The current wave (b) may end around $81.74 or extend a bit further to $86.70. A detailed study on the daily chart would provide a clue of its ending point.
Simply based on the bearish divergence on the weekly MACD, oil is unlikely to revisit the recent high of $86.70, as this is a strong reversal signal, suggesting a further consolidation.
Only a surge above $86.70 could confirm the continuation of the uptrend. On the daily chart, oil is riding on a wave (b), which may have a simple structure, consisting of three waves only.
Under this scenario, this wave (b) could end around $80.26, to be then totally reversed by a downward wave (c).
However, there is another scenario, which is more preferred.
There might be five small waves making up the wave (b).
These waves unfold within a rising wedge, with the wave (d) to travel towards $76.37 and the wave (e) to develop towards $81.75.
Eventually, this wedge will contract to a point and be confirmed as a bearish pattern. As far as timing is concerned, the wedge may complete in February.
A deep fall would then start and last until end of March.
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