Thursday, July 31, 2008

Is The Slide In Oil Prices Over?

Above is a daily candlestick chart of crude oil and as you can see oil prices have fallen sharply over the last month. What I find interesting is that oil has formed a bullish engulfing pattern at a key support area. In my opinion this is quite bullish for oil.

Below is a longer term view of crude oil which puts things in perspective as far as I am concerned. You'll notice how the 110 moving average has provided support for every single decline since 2007. Right now oil is testing this average and appears to be holding which may offer a low risk buying opportunity.

In the lower panel is the stochastic oscillator which is in the buy zone right now. Notice over the last 18 months how this oscillator has helped time every major buying opportunity in oil since 2007.

In my opinion the trend in oil is still up and if I am correct, oil is about to head higher. As always, we'll see what happens.


Gary said...

Just an observation. Oil bounced off the obvious $120 support. However there has never been a correction in oil that didn't retrace at least back to the 50% fibonacci level. That would take oil back to $100. It does seem to be asking a lot for oil to correct the largest parabolic of this entire bull market in only 2 weeks and still not even close to the minimun correction.

Keep in mind that only one correction stopped at the 50% level. 5 corrections pulled back to the 68% level and 3 lost 100% before resuming the uptrend.

Since we are now in a bear market it does seem unlikely that energy is going to ultimately resist the bear. Especially as the global recession is causing demand destruction.

I would suggest drawing a trendline from the Feb. lows and it's pretty obvious the trend has been broken in both oil and the CRB. The odds are probably greater that we see a dead cat bounce and then a continuation of the trend down rather than a move back to new highs.

Kevin said...

Good observations Gary but I still think this might be a low risk buying opportunity in oil right here.

Gary said...

You do have a close stop. If oil trades back below $120 then it's probably not done going down yet.

Kevin said...

I don't have any stop yet because my entry to get long didn't get hit..My entry is a few ticks above the bullish engulfment day's high which would confirm the candlestick formation. Once I am long my protective stop will go a few ticks below the low of the engfulment day's low.

Anonymous said...

Well, the oil has to paint the right shoulder before dropping below $120. So the trend is up for now.

Anonymous said...

Looks like crude oil broke the MA support on higher volume.


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