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Tuesday, July 3, 2012

WTI and Brent Crude Oil charts: bear market rallies

WTI Crude chart

WTI Crude_Jul0212

WTI Crude oil’s daily bar chart pattern tested its Aug ‘11 low of 76 and then bounced up above its falling 20 day EMA on a volume spurt. Note that WTI Crude oil and its 20 day EMA are both trading well below the 200 day EMA. Such a sharp fall in price is invariably followed by a counter-trend rally.

Can the rally continue a while longer? Positive divergences in all three technical indicators – which touched higher bottoms as oil’s price fell lower – are conducive to a rally. But crude oil is in a bear market – so the rally is a selling rather than a buying opportunity.

Technical indicators have corrected oversold conditions, but haven’t turned bullish yet. MACD is rising above its signal line, but remains negative. RSI has climbed up to its 50% level, but hasn’t crossed into bullish zone. Slow stochastic has moved vertically above its 50% level and is heading towards its overbought zone.

Beware of bears. They may spring a bull trap any time.

Brent Crude chart

BrentCrude_Jul0212_weekly

The concluding comments two weeks back about Brent Crude oil’s weekly closing chart pattern were: “If Brent Crude’s price drops to 90 before the next meeting in Dec ‘12, another OPEC meeting may be scheduled to reduce output. Unless a ‘black swan’ event occurs, a drop below 90 looks unlikely in the near term.”

Almost on cue, Brent Crude’s price dropped below its 200 week EMA, but bounced back sharply before it could fall to the 90 level. The chart clearly shows a double-top reversal pattern which has a downside target of 80. But OPEC members will do their level best to keep oil’s price above 90.

Technical indicators are bearish, but showing signs of turning around. MACD is still falling below its signal line in negative territory, but the histogram has started rising. RSI has emerged from its oversold zone. Slow stochastic is trying to climb out of its oversold zone.

Expect the counter-trend rally to face resistance from the 103 level, which is the ‘valley’ point between the double tops at 126 (touched in Apr ‘11 and Mar ‘12). Above 103, resistances can be expected from oil’s falling 20 week and 50 week EMAs.

Bears may start selling if Brent Crude oil’s price crosses the 100 level.

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