Tuesday, July 17, 2012

WTI and Brent Crude Oil charts: an update

WTI Crude chart

WTI Crude_Jul1612

Two weeks back, WTI Crude oil’s price and its 20 day EMA were both trading far below the 200 day EMA – a condition that is usually followed by a counter-trend rally. However, the following cautionary observation was made: “…crude oil is in a bear market – so the rally is a selling rather than a buying opportunity.”

Note that the rally faced resistance from the falling 50 day EMA, dropped down only to receive good support from the rising 20 day EMA, and is once again testing resistance from the 50 day EMA. Can the rally continue a bit longer?

The bullish technical indicators seem to suggest so. RSI is rising above its 50% level. MACD is above its signal line, and has just entered the positive zone. Slow stochastic has re-entered its overbought zone.

But the rally has been accompanied by sliding volumes. A rally needs rising volumes just like a person needs more oxygen at higher elevations. Without increase in volumes, a rally will stall. Remember that WTI Crude oil is in a bear market. The strategy should be to ‘sell on rises.’

Brent Crude chart


The 2 years weekly closing chart pattern of Brent Crude oil is playing out according to expectations. After forming a double-top reversal pattern, oil’s price dropped sharply below its 200 week EMA but stopped well short of achieving its target of 80.

There are a couple of reasons for not meeting the target price. Downward targets tend to fall short. The more important reason was that OPEC members had made a public statement that they may defend the 90 level by reducing output. So it wasn’t a great surprise that oil’s price bounced up sharply in a counter-trend rally before dropping to 90 on a closing basis.

Observations made 2 weeks ago still hold: “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.” Brent Crude oil is currently trading at the 103 level.

Technical indicators are bearish, but showing signs of turning around. RSI has emerged from its oversold zone and is rising towards its 50% level. MACD is negative and below its signal line, but has turned up. Slow stochastic has also emerged from its oversold zone and moving up towards its 50% level. The rally may get past 103, but not much further.

Technically, Brent Crude oil is in a long-term bull market. Bulls may regain control if oil’s price can climb above its 50 week EMA. Bears are unlikely to yield ground without a fight.

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