Video duration 13min 07sec.
Market outlook video reports for 2021:
Introduction: Market outlook 2021 crude oil futures
Hi, everyone. I’m Al Brooks. Thank you so much for your attention. At the end of every day, I look at charts to try to get an idea about what to expect for tomorrow.
I do the same at the end of the week, the end of the month, and now at the end of the year. This is the New Year’s Day weekend, and I made a series of charts to create videos to give my thoughts about what to expect for major markets in 2021. I made six different videos – Emini, the bond market, the Euro versus the dollar Forex market, gold, crude oil, and Bitcoin.
Now, I want to add a disclaimer up front: with every additional tick that we see, the outlook changes. I’m giving you my perspective as of right now, the start of 2021. I hope that you find the information useful.
In this video, I’m going to be talking about what I think crude oil futures will likely do over the coming years.
Monthly chart for crude oil futures
This is a monthly chart of crude oil. There was a sharp selloff here, a spike down. That typically will result in three legs down – one, two, and three – and then it typically gets a couple legs up – one, pullback, two. You can argue it’s already having two legs up – one, pullback, two – but normally the two legs up will have about half as many bars as the entire Wedge channel, and the entire Wedge channel is over 10 years, so we’ll probably be tending to drift up for at least a few years. This one, pullback, two is probably part of a complex first leg up, and it’s strong enough so I think we’ll probably get a third leg up to the channel. So it’s one, pullback, two, pullback, three or one, pullback, two, and then a test down to a Double Bottom and then three. But we should get above the top of that channel.
When we get there – somewhere there, somewhere above it, maybe the top of this Sell Climax – we’ll then get a test down, and I think the entire move up will be one and then pullback and then two, up here. The bulls would like to get back to the start of the channel, which is all the way up here, but I suspect it will take many years to get there, if ever. That’s about $150.
Extreme Sell Climax
This was an extreme Sell Climax. It doesn’t look like much compared to what we had over here, but it really was extreme. We went from basically about $100 down to about zero dollars in just a matter of months, and then we reversed up sharply.
Big down, big up creates big confusion, and confusion is a hallmark of a Trading Range. Typically after an extreme Sell Climax like that with a pretty good reversal like this, the market’s going to go sideways. We’re probably going to be sideways within the 6-year Trading Range for several years. Remember I said that we’re going to get two complex legs up. It might take a year or two or three to complete the first leg, and then a leg down might take a year or two down, and then another couple years up. So the entire process of testing up here could take several years.
You can see that this Trading Range is similar to this one in terms of length and in terms of height, and here’s that strong reversal up. It could be one, pullback, two, but it’s more likely that we’re going to go up for a lot more bars than just this after a 10-year bear trend or 11-year bear trend. This is not enough bars to correct a bear trend that lasted that long.
Third leg down – one, two, three. Typically you look for two legs up. One of my defaults is I look for the two legs up to have about half as many bars as there were in the Wedge down. So one, two, three over the course of maybe 11 or 12 years. Do I think we’re going to go up for 5 years? I don’t know, but I think we’re going up for a lot more than 1 year. I think it’ll probably take 2 or 3 years to get up here. And as I said, the bulls would like to come all the way up here.
The first target when you get a climactic reversal is a couple legs up to the top of the channel and to the top of the most recent Sell Climax. Probably up to the top of this Trading Range, so I think we’ll be somewhere in this area within a year or two.
Crude oil market fair price
The market thought this was a fair price for 6 years. When we get back into it, the market will be back in that fair price again. If we’re below it, the market thinks it’s cheap, we get back up to it, and if we try to get above it, the market will think it’s expensive and we’ll tend to come back to it. Therefore, I think this Trading Range is probably going to continue for at least another 2 or 3 years.
Impact of world moving away from fossil fuels
I know the argument the world is moving away from fossil fuels. I drive a Tesla. Lots of people will be driving electric cars. Will that prevent crude oil ever from rallying much again? Not necessarily. At a minimum we should get back up here. Technically, the charts after a Wedge Bottom – one, pullback, two, pullback, three – the market technically tends to test the top of that pullback from the second leg down, and if it can get above it, it would then try to test the top of the first pullback. So first selloff, first pullback, second selloff, second pullback, and then third selloff. This is probably going to be the low for many years. If the market does dip below it, there’ll be buyers below.
Now, for the bulls to get up here, they’ll probably need a couple closes. This is the monthly chart, so a couple bars closing above this high. If they get it, then we’ll probably test the next resistance, which is the top of that Trading Range. And again, if we get there, it’ll probably take many years.
Can the market stay sideways forever? Is the bull trend over forever? I think it’s a mistake to say that. The market has a Wedge Bottom – one, pullback, two, pullback, three. We should get a couple legs up over the next several years. We may stay sideways for another 5 or 10 years. We can’t go down much because this is getting near zero, and how far up can we go? Well, we have this resistance. I think we’ll be back up here, but not in the next 5 years or so.
Affect of inflation on crude oil price
And why is that? Because of inflation. At some point we’re going to get inflation again. $100 crude oil might seem expensive today, but if inflation gets up to 5% or 10% for a few years, all of a sudden $100 crude oil is not that expensive and the market getting back up to $150 would not be unreasonable. So I do think eventually we’ll get up here, but it might take a decade or more to get there. It might take many years of inflation that’s much greater than what we have now.
If you’ve only been trading for 3 or 4 years, your life experience is that inflation is virtually zero and that interest rates are virtually zero, but that’s not going to be the way it’ll always be. When I started trading back in the 1980s, inflation was crazy. It was very, very high. When Jimmy Carter was president, inflation was well over 10%.
But unless we get a dramatic increase in inflation, the best the bulls probably can get for the next 3 or 4 or 5 years is a test of the top of this range. At some point I think we’ll get there, but it might take 10 or more years, and it would take several years of inflation that is much higher than what we have right now.
Weekly chart for crude oil futures
Let me move on to the weekly chart. Obviously there was a big gap down here during that Sell Climax, and we’ve had two legs up – one, pullback, two. Both legs, this and this, are really strong. When the second leg is strong after a strong first leg, you typically get a third leg. So one, sideways, two, a pullback sideways or down, and then three. And here’s the top of that channel, so we should get there. This is the top of that Sell Climax, so we should get there.
As I said earlier, I don’t know if we have a pullback to a Higher Low and then we go up there, or if we come down here and form a Double Bottom and then go up there, or if we come down here and form a Higher Low Major Trend Reversal. But of all the things that can happen, the one that is most certain is at some point in the next couple years, we’ll be at this trend line or a little bit above it, and at some point in the next several years, we’ll be back up here.
And once we’re there, what will we do? Well, we’re in a Trading Range, and if the market goes up, you then expect it to go down. When it goes down, you expect it to go up. So bears will sell up here and bulls will buy down here.
Testing Measuring Gap
Obviously testing a gap, and it’s a Measuring Gap. I don’t have it drawn in, but the height of this Trading Range led to a Measured Move down to here, and we’re testing the top of that gap. We closed it over here. We might get some profit-taking. As I said, we may come all the way down here. I don’t think that we will; I think we may go down a little bit, maybe sideways, and it could be sideways for many months. But this is where the market is headed.
So, sideways or down a little bit and then we’ll go up there. Maybe higher. I think we’ll probably go up here at some point in the next few years. This will probably remain the low for many, many years, maybe decades. If the market were to drop below that low, I think traders would buy it aggressively, betting that the market would do this again. There’s not much room between this low and zero. Crude oil is always going to have some value, at least for many, many decades. There’s going to be a demand for it.
In a bull trend
We’re currently in a bull trend – a big bull trend. We went from basically zero to $50 over the course of 6 months, and that obviously is a very strong rally. But it’s probably a bull leg in a Trading Range, and the top of the range is probably around this Sell Climax high and somewhere not far above the bear channel, bear trend line.
As I said, in a Trading Range the bulls will look to buy low, maybe a test of the buy signal bar. What happened when the market was at this price? Well, traders bought. We went up. So the market might want to test that price to see if the bulls will buy again. The buy zone is probably somewhere below this Higher Low and somewhere down to here, possibly all the way down to the buy signal bar low. And where’s the sell zone? I’ve been talking about it. The top of that 6-year Trading Range, which is around the top of this Sell Climax and somewhere above this.
So right now we’re trending up. If we come down here, we’ll go up. We should get above this and up to this area at some point in the next couple of years, and when we do, we may go sideways, but at some point we’ll go down before we go much above.
And those are my thoughts about the monthly and weekly charts of crude oil for 2021 and beyond.
Again, I’m Al Brooks. Thank you so much for your attention. I hope that you found some of this information useful. I want to wish you the best for the coming year as a trader, and I also want to wish you and your family a very wonderful 2021.