SVB failed in March. Oil was destined to fall as early as February – here’s why;
The failures of Silicon Valley Bank, Silvergate Bank and Signature Bank have prompted a lot of discussion about the potential of a domino effect. People are wondering “what’s next?”
The financial press is linking just about every downward price move in just about every financial market to the woes in the banking sector.
As a March 15 headline noted (CNBC):
Oil tumbles to lowest level since December 2021 as banking crisis routs markets
At the time that headline published, West Texas Intermediate had fallen around 5% during that trading session.
But, first of all, if you’re failing to see an immediate connection between bank failures and crude oil prices, you’re not alone. I see no connection, either. What’s more, Elliott Wave International was forecasting the price of crude oil to decline well before the bank failures hit the news.
On Feb. 3, the February Global Market Perspective, a monthly Elliott Wave International publication which covers 50-plus financial markets, published with this chart and commentary (Elliott wave labels are shown to subscribers):
Crude Oil’s trend still looks down… [a strong Elliott wave] decline still seems like the likely path.
During the next month, oil largely traded sideways. Sometimes, Elliott wave analysis requires patience. On March 3, our March Global Market Perspective updated its crude oil analysis with this chart and commentary:
Crude Oil still looks lower. Crude has yet to step into the meat of the [strong Elliott wave decline] we’re anticipating, but it still seems like the likely path.
As you probably know, the price of crude oil has moved lower since our March Global Market Perspective published.
As with all financial markets, countertrend moves will inevitably occur. Yet, Elliott wave analysis provides context and a basis for forecasting before the news; without any news.
If you’d like to learn the details of the Elliott wave model, read Frost & Prechter’s Elliott Wave Principle: Key to Market Behavior. Here’s a quote from this Wall Street classic:
The Wave Principle is governed by man’s social nature, and since he has such a nature, its expression generates forms. As the forms are repetitive, they have predictive value.
Sometimes the market appears to reflect outside conditions and events, but at other times it is entirely detached from what most people assume are causal conditions. The reason is that the market has a law of its own. It is not propelled by the external causality to which one becomes accustomed in the everyday experiences of life. The path of prices is not a product of news. Nor is the market the cyclically rhythmic machine that some declare it to be. Its movement reflects a repetition of forms that is independent both of presumed causal events and of periodicity.
The market’s progression unfolds in waves. Waves are patterns of directional movement.
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This article was syndicated by Elliott Wave International and was originally published under the headline Crude Oil: Will “Banking Crisis Send Prices Even Lower”? Ha!. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.
