Crude Oil Weekly Technical Outlook
FMX | Connect - (www.fmxconnect.com) - (Reported 3/1/10)
Chart 1: Daily Front Month Crude (long-term analysis):
As we noted in our last report, supply has become increasingly anxious and uneasy (illustrated by the dotted pink line). Last week, buyers failed to push the short-term trend higher – a further indication that the overall pattern is breaking down. Selling pressure continues to increase, preventing the short-term trend to reach the top trend line of the channel. Volume dynamics corroborate the thesis. Notice how volume has increased as price decreased and vice versa.
Chart 2: Weekly Front Month Crude (long-term analysis):
From a weekly perspective, crude oil appears to be on a clear and defined upward path. However, the stochastic oscillator and most recent candle stick tell a much different story.
Starting in June-2009 – January-2010, crude made higher highs, while the oscillator made lower lows – a negative divergence. A negative divergence is a technical indication used to identify a change in momentum, and that a reversal may be in the making.
The candle stick print for the prior week is bearish – confirming the stochastic oscillator and overall trend. This type of candle is known as a “hammer” and is considered bearish in an uptrending market.
Chart 3: Daily Front Month Crude (short-term analysis):
This week, traders will be closely monitoring the 80.50 price level. If this level is penetrated, the next major hurdle will be penetrating the 83.50 level.
We believe the short-term pattern is bearish, and expect increased selling. Last week’s upward price action was not impressive. The stochastic oscillator is currently at 88, and decreasing (bearish). We’d sell as the oscillator crosses below 80.
Support levels to be watched are the 20, 50, and 100-day MA’s followed by the bottom trend line of the channel. In the event these levels are pierced, look for further support at the 200-day MA, and 69.60 price level.
Julian@fmxconnect.com
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