Friday, June 3, 2016

Chartology: Oil Prices Seeming Tired

July futures $49.05 off 12 cents.
Some folks we talk to are looking for a repeat of last year's July downturn which started in the middle of the U.S. peak driving season but this year may be later, something we haven't clearly identified-probably financialization of some sort-has been levitating prices in the face of more-than-adequate-supply.

From Barron's Getting Technical column:

Crude oil prices have nearly doubled to $50 but tough resistance levels await as the comeback starts to tire. 
It was fun while it lasted. Light sweet crude oil rallied from the abyss, nearly doubling from a low around $26 per barrel in February to the $50 area reached in recent days. However, both this market and Brent crude oil have reached price ceilings that seem formidable. 

That could be good news for travelers this summer as oil now looks to settle back a bit.

The $50 level was an important resistance level back in October as it stopped a rather encouraging, albeit temporary, rebound (see Chart 1). And going further back in time, we can see a congestion zone in early 2015, which means that there was a lot of uncertainty and repositioning by bulls and bears alike. The current price zone is important in the minds of traders just as it was after the 2008 debacle. 
Momentum indicators are not particularly bearish or even worrisome. However, we can see a contraction of the day-to-day swings, which is indicative of a tiring trend. It manifests on the chart as a rising wedge formation where the lows rise faster than the highs. Even though everything is still rising, bears seem to becoming more aggressive by selling progressively earlier.

Brent crude also sports a price ceiling at current price levels with an even crisper pattern (see Chart 2). Not only is this market at resistance from the breakdown point seen last November, but it is also at the major low set in early 2015.
Both markets look to have reached at least a temporary peak. However, we should note that both are trading above their key moving averages with 50-day averages above 200-day averages. I am hesitant to call this a “golden cross” as that is a stock market indicator, but it is certainly better for the bulls in the bigger picture to see this configuration in place....MORE