Best of the Week
Most Popular
1. Climate Change Mass Extinction - Birds, Bees and Bugs: Going Going Gone - Richard_Mills
2.A Purrrfect Gold Price Setup! - Peter_Degraaf
3.Who Finances America's Borrowing? Recession Indicator for Independent Thinkers Part 2 - F_F_Wiley
4.America’s One-sided Domestic Financial War - Raymond_Matison
5.Gold Price Summer Doldrums - Zeal_LLC
6.Two Key Events Will Unleash Gold - Jim_Willie_CB
7.Billionaire Schools Teacher in NAFTA Trade Talks - Richard_Mills
8.Get Out Of Crypto Cannabis Bubble Before It Pops and Move Into Bargain Basement Miners - Jeb_Handwerger
9.Stock Market Could Pullback for 1-2 weeks, But Medium Term Bullish - Troy_Bombardia
10.G7 Chaos, Central Banks and US Fed Will Drive Stock Prices This Week - Chris_Vermeulen
Last 7 days
What Did Crude Oil - Platinum Link Tell Us Last Week? - 17th Jul 18
Gold And The Elusive Chase For Profits - 17th Jul 18
Crude Oil May Not Find Support Above $60 This Time - 17th Jul 18
How Crazy It Is to Short Gold with RSI Close to 30 - 16th Jul 18
Markets Pay Attention Moment - China’s Bubble Economy Ripe for Bursting - 16th Jul 18
Stock Market Uptrend Continues, But... - 16th Jul 18
Emerging Markets Could Be Starting A Relief Rally - 16th Jul 18
(Only) a Near-term Stock Market Top? - 16th Jul 18
Trump Fee-Fi-Foe-Fum Declares European Union America's Enemy! - 16th Jul 18
US Stocks Set For Further Advances As Q2 Earnings Start - 15th Jul 18
Stock Market vs. Gold, Long-term Treasury Yields, 10yr-2yr Yield Curve 3 Amigo's Update - 15th Jul 18
China vs the US - The Road to War - 14th Jul 18
Uncle Sam’s Debt-Money System Is Immoral, Tantamount to Theft - 14th Jul 18
Staying in a Caravan - UK Summer Holidays 2018 - Cayton Bay Hoseasons Holiday Park - 14th Jul 18
Gold Stocks Summer Lows - 14th Jul 18
Trump US Trade War With China, Europe Consequences, Implications and Forecasts - 13th Jul 18
Gold Standard Requirements & Currency Crisis - 13th Jul 18
Focus on the Greenback, Will USD Fall Below Euro 1.6? - 13th Jul 18
Stock Market Outlook 2018 - Bullish or Bearish - 13th Jul 18
Rising Inflation is Not Bearish for Stocks - 13th Jul 18
Bitcoin Picture Less Than Pretty - 13th Jul 18
How International Observers Undervalue the Chinese Bond Market - 13th Jul 18
Stocks Trying to Break Higher Again, Will They? - 12th Jul 18
The Rise and Fall of Global Trade – Redux - 12th Jul 18
Corporate Earnings Q2 2018 Will Probably be Strong. What This Means for Stocks - 12th Jul 18
Is the Relative Strength in Gold Miners to Gold Price Significant? - 12th Jul 18
Live Cattle Commodity Trading Analysis - 12th Jul 18
Gold’s & Silver’s Reversals’ Reversal - 12th Jul 18
The Value of Bitcoin - 11th Jul 18
America a Nation Built on Lies - 11th Jul 18
China, Asia and Emerging Markets Could Result In Chaos - 11th Jul 18
Bullish Gold Markets in the Big Picture? - 11th Jul 18
A Public Bank for Los Angeles? City Council Puts It to the Voters - 11th Jul 18
Yield Curve Inversion a Remarkably Accurate Warning Indicator For Economic & Market Peril - 11th Jul 18
Argentina Should Scrap the Peso and Dollarize - 11th Jul 18
Can the Stock Market Close Higher For a Record 10th Year in a Row? - 11th Jul 18
Why Life Insurance Is A Must In Financial Planning - 9th Jul 18
Crude Oil Possibly Setting Up For A Big Downside Move - 9th Jul 18
BREAKING: New Tech Just Unlocked A Trillion Barrels Of Oil - 9th Jul 18
How Trade Wars Penalize Asian Currencies - 9th Jul 18
Another Stock Market Drop Next Week? - 9th Jul 18
Are the Stock Market Bulls Starting to Run? - 9th Jul 18

Market Oracle FREE Newsletter

5 "Tells" that the Stock Markets Are About to Reverse

Crude Oil Price Outlook

Commodities / Crude Oil Dec 06, 2013 - 06:37 AM GMT

By: Nadia_Simmons

Commodities

In our previous essay we focused on the oil-stocks-to-oil ratio and its implications for oil stocks. However, at the end of November we checked this ratio to find out what impact it could have on future crude oil's moves. At that time we wrote the following:

(...) the first thing that catches the eye on the above chart is a strong negative correlation between the ratio and the price of light crude.(...) the ratio remains in the gap between the April 2009 low and May 2009 high (...). In all previous cases, such a position of the ratio triggered a correction, which resulted in higher prices of light crude. Additionally, the ratio has approached the 38.2% Fibonacci retracement level (based on the entire 2009-2011 decline), which is a strong resistance level. Taking the above into account, if history repeats itself once again and the ratio declines, we will likely see the bottom of the current correction.


Since that essay was posted, the ratio moved higher and broke above the 38.2% retracement and the September 2009 high. However, at the end of the previous week, both breakouts were invalidated, which was a bearish signal for the ratio and bullish for crude oil. What impact did these circumstances have on light crude? It is said that one picture is worth a thousand words, therefore, let's jump straight into the world of charts and take a look at them in different time horizons. Let's start with a look at the monthly chart of light crude (charts courtesy by http://stockcharts.com).

In our essay on crude oil from Nov.7, 2013 we wrote:

(...) there are two long-term declining support lines. The blue one is based on the July 2008 and February 2012 highs. When we take this line into account, we see that crude oil broke below it the previous week, which is a bearish sign. However, if we take into account the black long-term support line (based on the July 2008 and May 2011 highs), we see that light crude still remains above it and the situation is not that bearish.

In spite of a drop to a fresh November low, crude oil remained above the black long-term support line based on the July 2008 and May 2011 highs. On top of that, in recent days the situation has improved as light crude climbed above the blue long-term declining support/resistance line. In this way, the breakdown below this line was invalidated, which is a strong bullish sign.

Now, let's zoom in on our picture of the oil market and see the weekly chart.

As you can see on the above chart, after three unsuccessful attempts to break below the medium-term support line (marked with the black bold line) oil bears showed their claws and finally pushed the price of light crude below this important support level in the previous week.

Looking at the above chart, we see that after the breakdown below this level crude oil reached its 200-week moving average and pulled back. Despite this fact, it closed last week below the medium-term support line, which was not a positive sign for oil bulls. However, the breakdown was not confirmed. As it turned out, earlier this week, crude oil rebounded sharply and the breakdown was invalidated, which is a strong bullish signal.

Now, let's check the short-term outlook.

As you can see on the above chart, the situation deteriorated in the previous week. After an invalidation of the breakout above the lower border of the declining trend channel (in terms of intraday lows), crude oil verified the breakdown and declined. Oil bulls didn't manage to hold the November low and the price hit a fresh monthly low of $91.77. Light crude dropped to the next support level created by the May low (in terms of daily closing prices).

In spite of this drop, last Friday, crude oil rebounded, but the upper shadow of daily candlestick suggested that the proximity to the lower border of the declining trend channel had a negative impact on the price.

As a reminder, at the end of last month, crude oil broke above this resistance level and came back in the range of the declining trend channel in terms of intraday lows. Back then, the proximity to the upper border of the declining trend channel in terms of daily closing prices (marked with the red dashed line) encouraged oil bears to act and light crude invalidated the breakout, which resulted in a new monthly low.

Earlier this week, oil bulls didn't give up so easily and pushed crude oil above both major short-term resistance levels. Additionally, Tuesday's breakout materialized on relatively high volume, which confirmed the strength of the buyers. Yesterday, we saw further improvement as crude oil closed the day above $97 for the first time since the end of October.

Summing up, the short-term situation has improved in recent days as crude oil broke above both short-term resistance lines on relatively high volume. Additionally, light crude came back above the previously-broken medium-term support line and the long-term one, which is another bullish signal. Taking these facts into account and combining them with declines in the oil-stocks-to-oil ratio we can assume that the worst is already behind oil bulls and further improvement is likely.

Thank you.

Nadia Simmons

Sunshine Profits‘ Contributing Author

Oil Investment Updates
Oil Trading Alerts

* * * * *

 

Disclaimer

All essays, research and information found above represent analyses and opinions of Nadia Simmons and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Nadia Simmons and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Nadia Simmons is not a Registered Securities Advisor. By reading Nadia Simmons’ reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Nadia Simmons, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.


© 2005-2018 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