Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
The Big Short 2020 – World Pushes Credit/Investments Into Risk Again - 11th Jul 20
The Bearish Combination of Soaring Silver and Lagging GDX Miners - 11th Jul 20
Stock Market: "Relevant Waves Vs. Irrelevant News" - 10th Jul 20
Prepare for the global impact of US COVID-19 resurgence - 10th Jul 20
Golds quick price move increases the odds of a correction - 10th Jul 20
Declaring Your Independence from Currency Debasement - 10th Jul 20
Tech Stocks Trending Towards the Quantum AI EXPLOSION! - 9th Jul 20
Gold and Silver Seasonal Trend Analysis - 9th Jul 20
Facebook and IBM Tech Stocks for Machine Learning Mega-Trend Investing 2020 - 9th Jul 20
LandRover Discovery Sport Service Blues, How Long Before Oil Change is Actually Due? - 9th Jul 20
Following the Gold Stock Leaders as the Fed Prints - 9th Jul 20
Gold RESET Breakout on 10 Reasons - 9th Jul 20
Fintech facilitating huge growth in online gambling - 9th Jul 20
Online Creative Software Development Service Conceptual Approach - 9th Jul 20
Coronavirus Pandemic UK and US Second Waves, and the Influenza Doomsday Scenario - 8th Jul 20
States “On the Cusp of Losing Control” and the Impact on the Economy - 8th Jul 20
Gold During Covid-19 Pandemic and Beyond - 8th Jul 20
UK Holidays 2020 - Driving on Cornwall's Narrow Roads to Bude Caravan Holiday Resort - 8th Jul 20
Five Reasons Covid Will Change SEO - 8th Jul 20
What Makes Internet Packages Different? - 8th Jul 20
Saudi Arabia Eyes Total Dominance In Oil And Gas Markets - 7th Jul 20
These Are the Times That Call for Gold - 7th Jul 20
A Reason to be "Extra-Attentive" to Stock Market Sentiment Measures - 7th Jul 20
The Beatings Will Continue Until the Economy Improves - 6th Jul 20
The Corona Economic Depression Is Here - 6th Jul 20
Stock Market Short-term Peaking - 6th Jul 20
Gold’s Major Reversal to Create the “Handle” - 5th July 20
Gold Market Manipulation And The Federal Reserve - 5th July 20
Overclockers UK Custom Build PC Review - 1. Ordering / Stock Issues - 5th July 20
How to Bond With Your Budgie / Parakeet With Morning Song and Dance - 5th July 20
Silver Price Trend Forecast Summer 2020 - 3rd Jul 20
Silver Market Is at a Critical Juncture - 3rd Jul 20
Gold Stocks Breakout Not Confirmed Yet - 3rd Jul 20
Coronavirus Strikes Back. But Force Is Strong With Gold - 3rd Jul 20
Stock Market Russell 2000 Gaps Present Real Targets - 3rd Jul 20
Johnson & Johnson (JNJ) Big Pharma Stock for Machine Learning Life Extension Investing - 2nd Jul 20
All Eyes on Markets to Get a Refreshed Outlook - 2nd Jul 20
The Darkening Clouds on the Stock Market S&P 500 Horizon - 2nd Jul 20
US Fourth Turning Reaches Boiling Point as America Bends its Knee - 2nd Jul 20
After 2nd Quarter Economic Carnage, the Quest for Philippine Recovery - 2nd Jul 20
Gold Completes Another Washout Rotation – Here We Go - 2nd Jul 20
Roosevelt 2.0 and ‘here, hold my beer' - 2nd Jul 20
U.S. Dollar: When Almost Everyone Is Bearish... - 1st Jul 20
Politicians Prepare New Money Drops as US Dollar Weakens - 1st Jul 20
Gold Stocks Still Undervalued - 1st Jul 20
High Premiums in Physical Gold Market: Scam or Supply Crisis? - 1st Jul 20
US Stock Markets Enter Parabolic Price Move - 1st Jul 20
In The Year 2025 If Fiat Currency Can Survive - 30th Jun 20
Gold Likes the IMF Predicting a Deeper Recession - 30th Jun 20
Silver Is Still Cheap For Now - 30th Jun 20
More Stock Market Selling Ahead - 30th Jun 20
Trending Ecommerce Sites in 2020 - 30th Jun 20
Stock Market S&P 500 Approaching the Precipice - 29th Jun 20
APPLE Tech Stock for Investing to Profit from the Machine Learning Mega trend - 29th Jun 20
Student / Gamer Custom System Build June 2020 Proving Impossible - Overclockers UK - 29th Jun 20
US Dollar with Ney and Gann Angles - 29th Jun 20
Europe's Banking Sector: When (and Why) the Rout Really Began - 29th Jun 20
Will People Accept Rampant Inflation? Hell, No! - 29th Jun 20
Gold & Silver Begin The Move To New All-Time Highs - 29th Jun 20
US Stock Market Enters Parabolic Price Move – Be Prepared - 29th Jun 20
Meet BlackRock, the New Great Vampire Squid - 28th Jun 20
Stock Market S&P 500 Approaching a Defining Moment - 28th Jun 20

Market Oracle FREE Newsletter

AI Stocks 2020-2035 15 Year Trend Forecast

Crude Oil and Negative Divergences

Commodities / Crude Oil Dec 06, 2017 - 07:57 AM GMT

By: Nadia_Simmons

Commodities

On Friday, crude oil increased and approached the November peak, but did this increase change anything in the broader perspective? Is it possible that the non-USD chart of crude oil give us more clues about black gold future moves?


Crude Oil’s Technical Picture

Let’s examine the technical picture of crude oil (charts courtesy of http://stockcharts.com).

Looking at the long-term chart of the commodity, we see that crude oil moved higher on Friday, which resulted in a re-test of the strength of the upper border of the blue rising trend channel. As you see, this important resistance withstood the buying pressure and in combination with the red, major resistance zone triggered a pullback.

What does it mean for light crude? As you know from our last week’s alerts, we believe that as long as there is no breakout above the above-mentioned key resistance area another bigger move to the upside is not likely to be seen and lower prices of black gold are still ahead of us (even if we have to show some patience first).

Having said that, let’s check what can what can we infer from the medium-term chart.

From this perspective, we see that the RSI climbed above the level of 70 only 3 times since almost 10 years. Such high reading of the indicator preceded the 2008 crude oil all time high and the May 2011 peak. In both these cases, we saw sizable declines in the following weeks, which suggests that history may repeat itself once again in the very near future – especially when we factor in the proximity to the major resistance zone marked on the long-term chart.

What’s interesting, we noticed one more negative situation on the non-USD (WTIC:UDN ratio) chart of crude oil. As a reminder, UDN is the symbol for the PowerShares DB US Dollar Index Bearish Fund, which moves in the exact opposite direction to the USD Index. Since the USD Index is a weighted average of the dollar's exchange rates with world's most important currencies, the WTIC:UDN ratio displays the value of crude oil priced in "other currencies".

Crude Oil from Non-USD Perspective

On the short-term chart, we noticed three negative divergences between the ratio and the price of crude oil priced in the U.S. dollars in 2017.

In many of our trading alerts you could read about the divergences between some indicator /indicators and the price of crude oil. The negative divergence (or the bear divergence) warns that the upward trend may end soon and appears when the price of the commodity rises to the new maximum, but the indicator hits its peak at a lower level than during the previous increase. Such situation is often considered as a sell signal and usually precedes declines.

What does this have in common with the above-mentioned divergences between the price of crude oil and the level of ratio? When we use the ratio in the same way as we use indicators, we think that we can get interesting clues about crude oil future moves.

As you see on the above chart, although black gold climbed above the January peak and hit a fresh 2017 high in the previous month, we didn’t see such breakout on the non-USD chart. Interestingly, on November 24, the ratio didn’t break above the previous peak creating another negative divergence. When we take a closer look at the chart, we can notice a similar situation at the beginning of the year. In February, crude oil increased above $55 and almost created a double top pattern. What happened at the same time with the ratio? It also moved higher, but visibly lower (we marked these situations with the blue dashed lines), creating a negative divergence. What happened next? After several days in the consolidation, crude oil and the ratio declined together, erasing around 60% of the November 2016-January 2017 upward move.

Taking into account the long-, the medium-term pictures and the above similarity between the current situation and what we saw at the beginning of the year, we think that reversal and declines in both cases (crude oil and the ratio) are very likely.

How low could crude oil go if oil bears show their strength in the coming weeks? In our opinion, if light crude extends losses from current levels, we’ll see (at least) a drop to around $54.81-$55.24, where the January peak and the mid-November lows are. If this support area is broken, the way to lever levels will be open.

Summing up, short positions continue to be justified from the risk/reward perspective as crude oil remains under the upper border of the blue rising trend channel seen on the monthly chart. Additionally, similarities between the current price action and what we saw at the beginning of the year (negative divergences between the ratio and the price of crude oil priced in the U.S. dollars) increases the probability of reversal and declines in the coming week(s).

Summing up, short (already profitable) positions are justified from the risk/reward perspective as crude oil invalidated the small breakout above the barrier of $50. This negative development together with the sell signals generated by the indicators suggests lower prices of the black gold in the coming days. If you enjoyed today’s analysis and you’d like to be updated on the following articles on crude oil, gold and other markets, we encourage you to sign up for our free mailing list. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today.

Thank you.

Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski
Founder, Editor-in-chief

Sunshine Profits: Gold & Silver, Forex, Bitcoin, Crude Oil & Stocks
Stay updated: sign up for our free mailing list today

* * * * *

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.


© 2005-2019 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