Tuesday, January 14, 2014

WTI and Brent Crude Oil charts: back in bear country

WTI Crude chart


The 6 months daily bar chart pattern of WTI Crude oil shows a classic bear market rally that can confuse investors who are not sufficiently familiar with technical analysis. Two weeks back, oil’s price had moved above its 200 day EMA into bull territory. Daily technical indicators were in bullish zones.

Under ‘normal’ circumstances, that would have been a buying opportunity. But there were a couple of bearish signs – falling volumes and the formation of a ‘rising wedge’ pattern. ‘Rising wedge’ patterns typically form in a bear market, and are almost invariably followed by corrections.

The initial fall below the wedge (on the last day of 2013) was accompanied by comparatively lower volumes, and the 200 day EMA provided support – which made it appear like a pullback that provides a buying opportunity. But a high volume crash below all three EMAs on the first trading day of 2014 put paid to bullish hopes.

The point to note here is: ‘Don’t buy on pullbacks; wait for the subsequent move.’

What next for oil’s price? Daily technical indicators are bearish and looking oversold. MACD is falling deeper into negative territory below its signal line. RSI is bouncing around at the edge of its oversold zone. Slow stochastic is well inside its oversold zone.

Bulls may attempt another rally. Bears are likely to use it as a selling opportunity. On longer-term weekly chart (not shown), oil’s price is seeking support from its 200 week EMA. A breach below can drop oil’s price to 85.

Brent Crude chart


In a post two weeks ago, it was observed that Brent Crude oil’s price had retreated a bit after facing resistance from the 113 level in bull territory. Though daily technical indicators were in bullish zones, they had started to fall. The concluding remark was: “Another fall below the 200 day EMA is likely.”

The new year began with oil’s price falling sharply below all three EMAs into bear territory, accompanied by strong volumes. A bearish pattern of ‘lower tops and lower bottoms’ has formed since the beginning of Dec ‘13.

Daily technical indicators are looking bearish. MACD is falling below its signal line towards its oversold zone. RSI is moving sideways below its 50% level. Slow stochastic is inside its oversold zone.

A fall below 106 can take oil’s price down to 103 – which is the current level of the 200 week EMA on longer-term weekly chart (not shown).

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