Tuesday, August 21, 2012

WTI and Brent Crude Oil charts: an update

WTI Crude chart

WTI Crude_Aug2112

In the previous post about the 6 months daily bar chart pattern of WTI Crude oil, technical indicators were bullish but volumes were strong on down days. That led to the following remark: “Even if oil’s price manages to cross above its 200 day EMA, it is likely to face renewed selling pressure.”

Note that the initial cross above the 200 day EMA (shortly after the previous post) was met with selling pressure and strong volumes on down days. But the selling was well absorbed by the market – a sign that bulls were gaining in strength. The next up move in oil’s price went easily past the 200 day EMA.

All three technical indicators are looking a bit overbought. Volumes during the later stage of the rally have been falling. Both the 20 day and 50 day EMAs are moving up but are yet to cross above the 200 day EMA. The entire trading pattern for the past 3 months appears to be forming a bearish ‘rising wedge’. There is no need to jump in. A cross above 101 can put the bulls back in control.

Brent Crude chart


In the past couple of posts, it was mentioned that the 2 years weekly closing chart pattern of Brent Crude oil was in a long-term bull market. The drop below the 200 week EMA in Jun ‘12, following a double-top reversal pattern, seems to have restored the technical health of the bull market.

The 20 week EMA is rising, and may cross above the 50 week EMA soon. However, weekly volumes are sliding, which is bearish. Technical indicators are looking bullish, but giving some mixed signals. MACD is rising above its signal line, but both are still in negative zone. RSI is above its 50% level, but moving sideways. Slow stochastic is well inside its overbought zone. A correction may be around the corner.

The sharp rise in oil’s price over the past 2 months is a bit puzzling. By all accounts, global demand is slowing down because of the economic down turns in Europe, USA and China. Any recovery will need the support of lower oil prices. There are some production issues in the North Sea and there was a big fire in Chevron’s California refinery. But the real reason seems to be speculation based on possible supply disruption from Iran. Protect your investments with appropriate stop-losses.

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