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Tuesday, September 4, 2012

WTI and Brent Crude Oil charts: oil is boiling again

WTI Crude chart

WTI Crude_Sep0412

The following remarks were made two weeks back about the 6 months daily bar chart pattern of WTI Crude oil: “All three technical indicators are looking a bit overbought. Volumes during the later stage of the rally have been falling…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.”

As often happens when technical indicators become overbought and volumes fall during a rally, a correction or consolidation follows. Oil’s price formed a ‘reversal day’ pattern (higher high, lower close) on Aug 23 ‘12, dropped down to its 200 day EMA on Aug 30 ‘12 and briefly breached the uptrend line connecting the Jun ‘12 and Aug ‘12 bottoms. The upward bounce the following day on a volume spurt was probably aided by short-covering prior to the Labor Day weekend.

The 20 day EMA has crossed above the 200 day EMA, but the 50 day EMA is yet to do so. Technically, the entire rally from the Jun ‘12 low appears to be a bear market rally within a ‘rising wedge’ pattern. A downward break out is the likely outcome from such a pattern (not drawn on chart). Only a convincing move above the 101 level will put the bulls back in control.

Technical indicators are looking bullish, after correcting overbought conditions. MACD is positive, but has crossed below its signal line. RSI has dropped from its overbought zone, and bounced up before reaching its 50% level. Slow stochastic has fallen from its overbought zone, but remains above its 50% level.

Brent Crude chart

BrentCrude_Sep0412_weekly

The two years weekly closing chart pattern of Brent Crude oil continues to trade in a long-term bull market. The 20 week EMA is about to cross above the 50 week EMA. That should restore bullish dominance. However, weekly volumes have been sliding during the entire rally from the Jun ‘12 low. Without volume support, the rally may not sustain much longer.

Weekly technical indicators are looking bullish. MACD is rising above its signal line, and is about to enter positive territory. RSI has moved above its 50% level but its upward momentum is slowing. Slow stochastic is well inside its overbought zone, but turning down.

There was an explosion and fire in Venezuela’s biggest refinery that has halted production. Hurricane Isaac caused production disruption in offshore platforms in the Gulf of Mexico. Lack of supply from Iran due to sanctions is another concern. But it still appears that speculation has been the over-rising factor for the 3 months long rally. Any further rise in oil’s price will begin to affect the growth prospects of the global economy. That won’t be in the best interests of the biggest oil producers.

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