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Look Out Below! Major Crude Oil Crash Is Coming Says Analyst

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Look Out Below! Major Crude Oil Crash Is Coming Says Analyst

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Crude oil has fallen 20% in less than 2 months. The drop has been sufficient to prompt most bears to declare victory and cover their shorts or even ponder getting long near last year's lows in the mid-$70s. But Jeff Kennedy, chief commodity analyst at Elliott Wave International thinks those buyers are early by about $40.

He bases his outlook on pattern recognition and psychology. His work suggests crude will plunge to the December 2008 lows of $38 a barrel then pause prior to falling another 50%. All in, Kennedy is forecasting an additional 80% drop in crude to $16.70 a barrel; a level not seen since November 0f 2001.

As a technician Kennedy pays little heed to the standard crude narratives involving Middle East tensions, supply disruptions, and refining. To him the charts tell the story and "the story right now in the crude oil price chart argues for a further decline well into 2013."

One of the contributing factors for the drop in crude is strength in the dollar, particularly against the beleaguered Euro. The thesis for getting long dollars and shorting euros is simple: the Eurozone is perpetually on the brink of collapsing, taking its fake currency with it. Sometimes simple works.

Fundamentally, technically and in every other way Kennedy likes the dollar as a breakout play on the dollar index and a breakdown trade against the euro. You can quibble with his methodology but you can't accuse Kennedy of hedging his bets.

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