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"It is extremely rare for two legs of a trend to ultimately equal each other."


October Crude Oil met a big target Friday at 66.50. This comes on the heels of seven declining sessions of the past nine. This string of losses was preceded by a week-long consolidation that followed seven out of eight declining sessions.

The two downlegs on either side of the consolidation are of equal measurement (~7-1/2 dollars each). The cumulative decline is considered to be "trending" because it originated at August's retest of the highs and reversed under June's interim low. It is extremely rare for two legs of a trend to ultimately equal each other; in fact Sunday night's open gapped down and eventually extended another dollar lower.

So, when's the next bounce? In the past two weeks, Crude Oil has fallen 14 dollars (20%). And in the past week, a sizeable discovery in the Gulf of Mexico was announced. This is a commodity, and not a stock. So, in place of corporate shenanigans and earnings warnings, there is the hurricane season, Middle East uncertainties, and Nigerian oil unions starting a three-day strike Wednesday.

Whether from a close today above 66.00 Friday's low or from a lower low at 64.50, a bounce would initially target 68.00, probably 69.25 and potentially 70.00. But it would be just that, a bounce, and not the start of a new rally leg. And if the initial target at 68.00 were the bounce's peak before reversing to lower lows under 65.00, then the 50's would be probable, with potential into the 40's.

A sustainable rally wouldn't even begin to be considered without first closing above the 71.00 area. Meanwhile, it might seem a bit difficult to envision Crude Oil down another 15 dollars to the 51.00-52.00 area. But then, few of us were even considering a price 14 dollars lower one month ago.

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