A Long Term View On …. Crude Oil
- Posted by Greg Harmon
- on December 18th, 2012
West Texas Intermediate Crude Oil (WTIC), $CL_F, $USO, is the life blood of the US. Fluctuations in its price can destroy our economy or turn it into a powerhouse. And flipping the relationship on its head, an economic crisis can materially impact its price as well. The spike to over $147 per barrel in 2008 was met with a crashing fall during the financial crisis. It recovered quickly and what has it been doing since early 2010? Basically nothing. Lets look closer. The monthly chart below shows a symmetrical triangle tightening around the 88-91 level. The Relative Strength Index (RSI)
is also creating a tightening grip on the mid-line. Layering on the Fibonacci retracements from the last 3 biggest moves shows a lot of congestion between 75.27 and 103.95, giving some reasoning for the consolidation (you can click on the chart to make it larger and see the layers). There is a real divergence in this chart with that RSI holding in bullish territory and the Moving Average Convergence Divergence indicator (MACD) negative. Another reason to move sideways. The important takeaway from this timeframe is that there is a $36 move tied up in the triangle pattern once it does break. The rising Simple Moving Averages (SMA) give the edge to the upside in a tie
breaker. But moving in to the weekly view above does not really clear anything up. The RSI on this timeframe is bearish but tightening on the mid line, with a MACD that is improving. Adding to the confusion, all of the SMA are moving sideways, creating a range with 84 and then 77 to the downside and 90 to the top. Maybe the daily chart will provide insight. The chart below shows that the Lower Median Line of the bullish (green) Andrew’s Pitchfork is losing control to the Upper Median Line of the bearish (red) Pitchfork. A move and hold over the long term resistance at 88
would change that back the other way. There are small signs that this could be happening. The RSI is rising, but still not bullish, and the MACD is crossing to positive, although not very strongly. A move over 91 would provide more certainty to the case for higher prices. But failure at the top of the bearish Pitchfork and a move under 84 will clarify the picture to the downside. Until then, it is range bound.
This is the sixth in a series of A Long Term View On …. articles that will appear of the next few weeks.
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Gregory W. Harmon CMT, CFA, has traded in the Securities markets since 1986. He has held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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