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Downleg in Crude Oil

Commodities / Crude Oil Sep 20, 2011 - 03:45 AM GMT

By: Mike_Paulenoff

Commodities

Nearby NYMEX crude oil finally proved the chart work correct as it plunged from the upper portion of its September congestion pattern (89.00-90.00) to the lower portion (86.00-84.00). The decline from last Thursday's lower recovery high at 90.15 into this morning's low at 84.93 has the look and structure of a completed downleg.


If accurate, this means that a period of upside backing and filling towards its key near-term breakdown area (86.50-87.50) could be in store in the upcoming hours. It is for this reason we exited our inverse (short) position in the ProShares UltraShort DJ-UBS Crude Oil (NYSE: SCO).

Apart from this shorter-term trading strategy and outlook, my longer-term work on NYMEX crude argues strongly that a counter-trend recovery period from the August 8 low at 75.71 ended at the September 13 high at 90.52 and that a new downleg has commenced that should revisit and likely break the August low. ETF traders may want to keep an eye on the U.S. Oil Fund ETF (USO).

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By Mike Paulenoff

Mike Paulenoff is author of MPTrader.com (www.mptrader.com), a real-time diary of his technical analysis and trading alerts on ETFs covering metals, energy, equity indices, currencies, Treasuries, and specific industries and international regions.

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