Market Overview

Technical Analysis: Mid-Term Downtrend in Crude Could be Stalling

Recent Analysis

Since the beginning of 2009, we have seen an impressive bull trend in crude oil futures. The bull trend started to putter out in May 2011, trading over $114 per barrel at its peak.

After hitting its peak, crude futures began its downtrend. The commodity started to trend lower, and in some weeks, the moves were quite volatile. This downtrend is currently still intact, but has formed a hazy Double-Bottom pattern, with the first bottom formed in August, and the other in October. The low of $74.95 on October 4th could be a mid-term bottom.

However, global-macro factors could push the commodity back to test these lows, or even break below it.

Future Analysis

Within the last couple days, crude futures broke above its 50-day moving average. This is seen as a bullish sign, even though a confirmation in volume was average.

The commodity is stuck in its downtrend channel, though it buoys towards the top end of the range. This downtrend, which began in May, has stair-stepped to the lowest point thus far in early October at $74.95.

Technicians would like to see a hold above the 50-day moving average with a break above the downtrend resistance level, to continue this short-term rally even higher.

The October 4th low could be set as the new mid-term low as the Relative Strength Index shows divergence between recent capitulation bottoms.

We will likely see crude futures bounce lower from current levels as it battles with the downtrend resistance line and also the 50-day moving average.

Likely scenarios include some of the following:

  • One of the more likely scenarios - A drop from the current $85 level to test recent price-gap level of about $84. Then a continuation higher and ultimately breaking above the downtrend resistance line.
  • One of the more likely scenarios - A drop from the current $85 level to test $78-$80 support level. Then a continuation higher and ultimately breaking above the downtrend resistance line.
  • A drop from the current $85 level to test $74.95 support level. Then a continuation higher and eventually breaking above the downtrend resistance line.
  • If economic growth continues to suffer - A drop from the current $85 level to test $74.95 support level and break below, continuing the downtrend, is possible.

Be aware that the trend is still down, and the 200-day moving average if facing lower. These are bearish signs. Also, any global-macro factor could change any of these scenarios.

If crude oil futures break above the downtrend resistance line, next potential resistance forms around the $90 level. Consolidation off this level is expected before breaking above it.

Resistance above $90 would include the 200-day moving average, which is currently at $95.03. A move above $95 is unlikely in the coming months, as global growth continues to be strained. A move above $95 would likely come after the coming six months.

Short-Term Support Levels

  • Support-1: ~$84 (recent price-gap level)
  • Support-2: ~$79 (earlier capitulation bottom)
  • Support-3: ~$75 (prior lows)

Short-Term Resistance Levels

  • Resistance -1: ~$85 (current downtrend resistance)
  • Resistance -2: ~$90 (psychological level)
  • Resistance -3: ~$95 (200-day moving average)
Stock chart: 
Stock chart

Posted-In: Long Ideas News Short Ideas Futures Technicals Commodities Global Economics Best of Benzinga

 

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