The Oil Rally Has Dripped Dry
Dragonfly Capital | Jul 28, 2016 07:19AM ET
Crude oil had a very strong move higher off of a bottom at the beginning of the year. 6 months into the rally it had moved almost 100% higher. Everything was looking up. And then it started to roll lower in July.
With just two trading days left if the month it is showing a very strong move downward. Is this normal digestion of the run higher? Or has the rally fizzed and dried up?
The long term monthly chart below may give some insights. The first thing to focus on is the rising trend line off of the 1999 low. This held oil as support for 16 and a half years until it broke down below it in August last year.
After the break down crude oil continued lower until printing two candles with long lower shadows, a bottom signal, in January and February. The rise began from there and look where it found trouble. Right at that trend line. What was once support was now resistance.
A doji candle at resistance, signaled indecision. And that resolved to the downside at the start of July. And with gusto. Without a strong bounce it will print a bearish Marubozu candle for July. This would be one indication that the entire rally from January to June was just a Dead Cat Bounce. The chart would also give a possible downside target.
Looking at the bounce from April 2015 to June 2015 and then the retrace lower there is a parallel like read to this move. The bounce was the same height and the drop from June 2015 to the low in January, a move of $35, would give a target below to $16.
There are no guarantees that it will get to $16. And there is real support just below $35 and then at the Potential Reversal Zone (PRZ) of the Bat around $29. What does seem clear though is that the long term trend for oil has turned back lower.
DISCLAIMER: The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.