Crude Oil dips as it attempts to make a base above $56 before rallying
Commodities / Forecasts & Technical Analysis Nov 15, 2006 - 01:36 AMBy: Nadeem_Walayat
Crude oil prices fell as mild weather countered OPEC's announcement that it will cut production. Crude Oil continues to build a base between 58 and 62, above the support zone of $56, in prelude to an uptrend after the sell off into October that took crude oil to technically very over sold state.
Technical Analysis
1. Price Patterns & Support - The decline was strong off the 80 high, which suggests that the next up trend is likely to be weak. The key support is $56, which crude continues to hold. Key chart resistance area is between 72 and 68.
2. MACD - (Bottom indicator) - Has reached a very oversold state, which suggests that regardless of the fundamentals, crude oil is due at the very least a corrective rally. Of key interest is the lower high made in July and the Lower Low made in November, which suggests that the expected rally will not be particularly strong, and likely to encounter significant resistance at $70.
3. Moving Averages - In a further sign of weakness, crude oil continues to trade below its 50wk moving average, and the long-er term 200 wk moving average rising towards 50. This suggests a corrective rally to the 50 week, and a following trend lower towards the 200day is likely.
5. Time - The decline in crude time wise is one of the largest during the bull market and suggests that a retest of the high is not likely in the near future, rather a corrective rally into Dec / Jan, as crude oil marks time before it retests the lows.
Conclusion - Crude Oil, is attempting to make a base above $56 for a rally towards $70. This has so far taken a month to form, with increasing signs that the bottom formation is virtually complete, and suggests a move higher in the coming weeks. Though this is at this point being seen as a corrective rally, and likely to be followed by another move lower to $56.
Buy Trigger - A break of $63.50
Target - $70 resistance area.
Stop-Loss - 50% of the high low range $64 to $57 or lower = $60.50.
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Nadeem Walayat
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