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Thursday, April 19, 2012

Crude oil chart pattern: an update

In the previous post about Brent Crude oil’s 2 years weekly chart pattern, the possibility of a correction and a drop in price to the level of the 50 week EMA (at 112) was mentioned. The 6 months daily chart pattern below shows a bearish ‘descending triangle’ reversal pattern.

Note the sharp fall on Apr 10 ‘12 below the twin support at 121 provided by the lower (horizontal) edge of the ‘descending triangle’ and the 50 day EMA. A pullback towards the triangle followed on Apr 12 and 13. Such pullbacks are quite common after downward breaks below a technical support level, and provide a selling opportunity.

Oil’s price has since dropped convincingly below the 50 day EMA, and is getting ready to test support from the 200 day EMA. Will the long-term moving average stop the price fall or can the price drop even further?

Brent Crude_Apr1812-001-001

The level of the 200 day EMA (at 114) coincides with several tops made in Jan ‘12. Previous tops tend to provide support. The downward target from the ‘descending triangle’ is also at 114. Strong support at 114 can be expected.

The technical indicators are looking bearish. The RSI has dropped below its 50% level. The MACD is below its signal line and both lines are in negative territory. The slow stochastic has entered its oversold zone. The price correction isn’t over yet.

Let us now have a look at the 3 years weekly bar chart pattern of Brent crude oil:

BrentCrude_Apr1812

The longer term chart is still looking bullish, but there are definite signs of weakness. Oil’s price formed a small ‘rounding top’ pattern and dropped to the 20 week EMA, where it appears to be getting some support. The 50 week EMA is currently at 113, which is just below the support level of 114 mentioned above.

The technical indicators are beginning to look a bit bearish. The RSI has almost dropped to its 50% level. The MACD is touching its signal line in the positive zone. The slow stochastic has fallen sharply from its overbought zone.

In case oil’s price falls below 113, then bullish bets will be off and the door will be opened for a deeper fall to the 200 week EMA (at 95) or even lower. OPEC members will surely curtail production to prevent such an outcome.

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