Best of the Week
Most Popular
1. Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - P_Radomski_CFA
2.Fed Balance Sheet QE4EVER - Stock Market Trend Forecast Analysis - Nadeem_Walayat
3.UK House Prices, Immigration, and Population Growth Mega Trend Forecast - Part1 - Nadeem_Walayat
4.Gold and Silver Precious Metals Pot Pourri - Rambus_Chartology
5.The Exponential Stocks Bull Market - Nadeem_Walayat
6.Yield Curve Inversion and the Stock Market 2019 - Nadeem_Walayat
7.America's 30 Blocks of Holes - James_Quinn
8.US Presidential Cycle and Stock Market Trend 2019 - Nadeem_Walayat
9.Dear Stocks Bull Market: Happy 10 Year Anniversary! - Troy_Bombardia
10.Britain's Demographic Time Bomb Has Gone Off! - Nadeem_Walayat
Last 7 days
Stock Market Pause Should Extend - 21st April 19
Why Gold Has Been the Second Best Asset Class for the Last 20 Years - 21st April 19
Could Taxing the Rich Solve Income Inequality? - 21st April 19
Stock Market Euphoria Stunts Gold - 20th April 19
Is Political Partisanship Killing America? - 20th April 19
Trump - They Were All Lying - 20th April 19
The Global Economy Looks Disturbingly Like Japan Before Its “Lost Decade” - 19th April 19
Growing Bird of Paradise Strelitzia Plants, Pruning and Flower Guide Over 4 Years - 19th April 19
S&P 500’s Downward Reversal or Just Profit-Taking Action? - 18th April 19
US Stock Markets Setting Up For Increased Volatility - 18th April 19
Intel Corporation (INTC) Bullish Structure Favors More Upside - 18th April 19
Low New Zealand Inflation Rate Increases Chance of a Rate Cut - 18th April 19
Online Grocery Shopping Will Go Mainstream as Soon as This Year - 17th April 19
America Dancing On The Crumbling Precipice - 17th April 19
Watch The Financial Sector For The Next Stock Market Topping Pattern - 17th April 19
How Central Bank Gold Buying is Undermining the US Dollar - 17th April 19
Income-Generating Business - 17th April 19
INSOMNIA 64 Birmingham NEC Car Parking Info - 17th April 19
Trump May Regret His Fed Takeover Attempt - 16th April 19
Downside Risk in Gold & Gold Stocks - 16th April 19
Stock Market Melt-Up or Roll Over?…A Look At Two Scenarios - 16th April 19
Is the Stock Market Making a Head and Shoulders Topping Pattern? - 16th April 19
Will Powell’s Dovish Turn Support Gold? - 15th April 19
If History Is Any Indication, Stocks Should Rally Until the Fall of 2020 - 15th April 19
Stocks Get Closer to Last Year’s Record High - 15th April 19
Oil Price May Be Setup For A Move Back to $50 - 15th April 19
Stock Market Ready For A Pause! - 15th April 19
Shopping for Bargain Souvenirs in Fethiye Tuesday Market - Turkey Holidays 2019 - 15th April 19
From US-Sino Talks to New Trade Wars, Weakening Global Economic Prospects - 14th April 19
Stock Market Indexes Race For The New All-Time High - 14th April 19
Why Gold Price Will “Just Explode… in the Blink of an Eye” - 14th April 19

Market Oracle FREE Newsletter

Top 10 AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Crude Oil tumbles through support levels, is the bull market over ?

Commodities / Forecasts & Technical Analysis Jan 04, 2007 - 11:05 PM GMT

By: Nadeem_Walayat

Commodities

Crude oil plunges through key support levels built during the recent consolidation area of 56 to 63.

Crude Oil had been in an up trend since start of 2002, which had taken the price from just over $15 to just shy of $80 going into July 2006. Now following a failed attempt to resume the up trend, crude is threatening to end the bull market by yesterdays price action in the face of a much milder than expected US winter.


Our last article on crude oil warned of a probable sharp drop in crude oil during 2007 ( 3rd Dec 06 - Crude Oil rallies, but a widening Contango could lead to a collapse in oil prices during 2007 ) "It means that the continuing build up in inventories of crude oil for future delivery, rather than being rolled over, will at some point be delivered, and as and when that happens (probably sooner rather than later), it will lead to a sharp sell off in crude oil prices !"

Crude oil plunges through key support levels built during the recent consolidation area of 56 to 63.

Technical Analysis

  1. Price Patterns - The danger lights are flashing RED for crude oil. As the pattern developing given the recent sell off resembles the classic Head and Shoulders pattern. Such a pattern would call for a move equal to the height of the head from the neck line.or approx $23 lower to $ 33 ! So its implications are huge. Already we had considered a move to $40 during 2007 as likely. This pattern is confirming a move of such magnitude.
  2. Trend Lines - The support trendline from Dec 05 was breached in September, however on a longer-term chart from 2002, Crude Oil had held support, Which gave the market support at $56 after which the rally occurred to $64. Since that rally petered out Crude Oil is now clearly in a sharp downtrend channel which targets much lower oil prices, infact the trendline's do project to below $40 by mid year..
  3. Support - Major support lies at current levels i.e. between the zone $50 to $55. Given the sharp sell off, it is likely that this support will initially at least halt the decline.
  4. MACD - The MACD is clearly bearish, where the up move in price during November and December 2006, was purely to unwind an oversold state. The MACD suggests another leg lower of similar magnitude to the July to October decline.
  5. Time - The timing for the decline is four months, which given the recent sell off suggests some consolidation rather continuing the move lower in the immediate future.

Conclusion - The anticipated sell off in crude occurred sooner than expected as the corrective rally FAILED to make any significant movement towards $70. This is very bearish for crude oil. And implies that crude oil is on target to achieve $40 or lower during 2007. The weakened trend suggests it will achieve this target during the first half of 2007. The reasons why are numerous, as the reasons why crude oil should go higher are also numerous, so I will only mention one fundemental reason which was stated in my article of 3rd December, namely the build up on inventories in anticipation of forward selling by producers which was expected to hit the market hard during 2007 and drive prices sharply lower.

The crude market had been waiting for a trigger for this sell off to occur, and it appears that trigger was news of mild US winter, though any triggering news item would have lead to the same conclusion.

by Nadeem Walayat

Disclaimer - This Analysis / Forecast is provided for general information purposes only and not a solicitation or recommendation to enter into any market position, and you are reminded to seek independent professional advice before entering into any investments or trading positions.

Attention editors and publishers ! This article can be republished. Republished articles MUST include attribution to the author and the following short paragraph:

The Market Oracle is a FREE Financial Markets Forecasting & Analysis online publication. We aim to cut through the noise cluttering traditional sources of market analysis and get to the key points of where the markets are at and where they are expected to move to next ! To view articles, visit http://www.marketoracle.co.uk


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules