Technical Analysis: Crude Oil 3 February 2008
Overall
As shown in the monthly crude oil chart below, the price and volume traded in crude oil has been growing exponentially since 2003. As indicated by the widening of the upper and lower price trend lines, the volatility is increasing. For the past six months, prices have been above the 5-period moving average (show in white) and been riding up the upper Bollinger band (two standard deviations above the mean, shown in pink). While it would not be surprising, if prices touched down to the lower Bollinger band in the next year, it seems highly likely given it’s trajectory that prices exceed $150 per barrel in the next couple of years. A target of $150 per barrel within several years seems conservative given the solid fundamentals for oil demand overreaching oil supply in the upcoming years. Given the supply and demand situation and assuming continued global oil dependence, prices may soar only beginning to stabilize when significant “demand destruction” occurs, mostly likely in the form of a severe economic recession or depression, deeper than any most of us have experienced.
Monthly Chart
Crude dropped more than 4% from last years close at $95.98 to January’s close at $91.75. Last month’s candlestick (the second to last bar above) was solid red with long upper shadow and an even longer lower shadow. The RSI touched 70 and dipped below the overbought zone. Crude is now at the 5 month moving average which appears to have peaked.
Weekly Chart
As shown in the weekly chart on the right, Crude oil dropped $1.75 last week ending at $88.96. I went as high as $92.71, leaving an upper shadow. The red solid candlestick did not confirm the bullish reversal hanging man from the previous week. The 5, 10, and 20 week moving averages are converging at about $91 right below resistance at the half way point of the the solid red candlestick three weeks ago. Next resistance is last weeks upper shadow at $92.71. Support is at about $85.
Daily
As shown on the daily chart on the left, the uptrend ended mid week and crude has moved down the past two days. Crude ended the week right around the support at $89.11 and below the 5,10,and 20 week moving averages. Additional support is at $88.46 and below that at the lower Bollinger Band (about $86.50). Resistance is now at $90.22, the midpoint of Friday’s solid red candlestick. Next resistance is at $92.19/$93.02.
Final Thoughts for Crude
Crude is on a four downtrend. Support is at $85, resistance at $91 and $92.71.
Disclaimer: this technical analysis is provided as a public service so that people start to understand that oil prices go in cycles and that volatility is increasing which means we may see some drops here and there but the trend is upward and for wider swings. It is not intended to be investment advice. Note also that technical analysis is solely based on chart patterns and that changes in fundamentals such as oil stock inventories can easily overwhelm and alter technical trends.
