Crude Confusion

Although we do take note of fundamentals when analysing asset prices, as chartists the main focus is on technical analysis, as price is always right.

If we take a look at a chart of the price of crude oil, it presents a confusing picture. Having “corrected” by 30% during Q212, the price then “rallied” by 40% until September 2013 only to sell-off once again to the current $93.63 a barrel.

 Moving average analysis shows the 50 day and 200 day whipsawing to the current longer-term bearish position of the 50 below the 200.

Bearish moving average relationships aside, we can see important short term support at the dashed turquoise-trend line, from which price bounced in mid-2012, then again in April and November 2013. That support line is now being tested once more.

weekly_blog_140109_01

With so much uncertainty over the current direction for the price of Oil, it makes sense to zoom-out and look at a longer time frame such as the following chart of “weekly price bars” as opposed to daily.

weekly_blog_140109_02

Here we can note just how overpriced oil became in 2008, note the parabolic move which went way above the blue 200 week moving average, and then promptly collapsed, erasing all of the prior four years of gains, a typical parabolic rise and collapse.

Price then became over-sold, note once again the distance between price and the 200 week MA, this time below it. Since then, however, any correction in price has found support at the 200 week MA.

Commodities in general started to correct in mid to late 2011, which has included this period of confusion for crude. In fact, it has been trapped between the two horizontal lines, green as resistance and red for support.

Our conclusion would be to await a break-out in the price of Crude, as it either  penetrates that turquoise dashed line within the first chart, currently at $93 AND the 200 week MA shown in the second chart, which also is at the $93 mark, when one should either exit this asset class or possibly short it, particularly if the price penetrates the red support line at $79 OR await a break through of the resistance line at $111, when there is clear sky towards the old high at $147.

Hopefully that clarifies any crude confusion?

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One response to this post.

  1. […] & Gold: January’s “Crude Confusion” gave the first hint of a fall for the price of Oil, highlighting the moving-average cross and […]

    Reply

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