Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Oil Update: No Breakout So Far, but the Trend Remains in Place

By

Plus, what is the relationship between gold and oil in the near future?

PrintPRINT
Now that we know the situation in the Middle East, let's focus on the factor that has have been terrorizing the markets for weeks: The Fed and its stimulus program. As the prospect of imminent attacks on Syria receded, it seems that investors came back to focusing on economic data and the Fed tapering once again. In the previous week, the better-than-expected US economic data were an additional bearish factor, which pushed the price of light crude lower. The US economy expanded at a faster pace in the second quarter and first-time jobless claims fell more than forecast, which raised speculation that the Fed would reduce its $85 billion monthly bond buying in September.

Keeping in mind these factors and their impact on the price of light crude, let's now move on to the technical part of our oil update. We'll take a look at the charts from different time perspectives to have a more complete picture of the current situation in the oil market.

Let's start with a look at the monthly chart of light crude (charts courtesy of http://stockcharts.com).



Looking at the above chart, we clearly see that light crude still remains above the two long-term declining resistance lines; one of them (bold red line) is based on the July 2008 and the May 2011 highs, and the second one is based on the September 2012 and March 2013 highs (the upper black line).

The breakout hasn't been invalidated since June. Therefore, from this perspective, the picture is bullish.

Now let's zoom in on our picture of the oil market and look at the weekly chart.



Quoting our firm's last oil update:

[T]he recent weeks have formed a consolidation. The inside bar candlestick pattern is worth mentioning at this point. It is characterized by the inside candle's price action being completely covered by the price action the week before. According to theory, if the buyers manage to break above the resistance level (the July top), the price target for the pattern will be around the May 2011 top.

Please keep in mind that there is a strong resistance zone based on the March 2012 top and the upper border of the rising trend channel which may encourage oil bears to go short and trigger another corrective move.

On the above chart, we see that there was a breakout above the July and the March 2012 highs in the recent days, however, the aforementioned strong resistance zone stopped further increases. Oil bulls showed their weakness and the pro growth scenario was not realized. The proximity to the May 2011 top encouraged oil bears to go short and trigger another corrective move, which took the price of light crude back to the consolidation range.

Despite this fact, the outlook is still more bullish than not at this time.
No positions in stocks mentioned.
PrintPRINT

Busy? Subscribe to our free newsletter!

Submit
 

WHAT'S POPULAR IN THE VILLE