Tech Guy Crude Oil Comments 2/2/26

Elliot Wave theory describes the motion on a price chart. Specifically, it is a numbering system for the different legs or waves of price movement. An impulse wave is motion in the primary (dominate) direction of the market, and it is numbered 1, 2, 3, 4, 5, with 1, 3 & 5 being the primary legs, and 2 and 4 the corrective legs. Corrections consist of only 3 waves - A, B, C.

Our example is crude oil, which recently traded an impulse wave higher (5 total legs/waves). Now, crude is in a corrective phase down. Corrective waves are generally labeled with A, B, C, but they can also trade in 5 or even 7 waves (triangle). As of today, crude oil has completed the A, B, C down. We don't know if the correction is complete yet, because corrections can also consist of 2 A, B ,C's linked together by another leg, or a 5 wave triangle consisting of an A, B, C D, E. This information will make more sense when you look at the chart.

Elliot wave along with other information, can help the trader or technician better understand where the market is trading in terms of the cycle or phase. In other words, it helps the chart technician keep track of what is more likely to occur next. Therefore, the crude chart could begin another impulse higher or continue to correct or trade sideways. We need more chart data moving forward, to better understand what's the next chart legs/waves will look like.

Elliot waves also alert the trader if there are more new positions being added or more positions being liquidated. During up impulses, there is more new buying taking place than there is short covering. During a corrective wave, more liquidation is occurring than new shorts being added.

This crude example illustrates one more tidbit of data. The 3 wave correction is considered simple, and a 5 or higher wave count is called complex. In crude oil, correction # 2 is complex and 4 is simple. The chart rule here is called the law of alternation. If 2 is simple, 4 is more likely to be complex, and if 2 is complex, then 4 should be simple.

This is the 4 hour intraday crude oil chart - note the labeling and text.

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