Tuesday, November 15, 2011

Crude oil rally nearing significant resistance levels - charts views

Crude oil has staged a great rally over the past almost-two months, following the previous five-month drop that took it to the $75-ish level in $WTIC. I'd figured it could get as high as $103 since that's the 70.7% retrace to the swing high of almost two months ago. But right at $100 in $WTIC is the 61.8% retrace level, and that can be enough is this turns out to be the bearish scenario. The bearish scenario I'm talking about would be that this is a second-wave bounce before a large wave three down. So it's time to start watching this closely, folks!

Indicators suggest that it's close to losing momentum, although that hasn't occurred just yet (indicators discussed more below, after the two charts). Assuming it does tag and then trace a reversal from $100 (or $103 if need be), then one target would be $60 or $61 in $WTIC which would be an drop equal to the one from about $115 to $75 (if it occurs from $100 that is). Another target would be $65.50 which would take $WTIC 61.8% of the way back to $35. Then there's $58.50 which is 70.7% of the way back to $35.

The uber-bearish scenario would actually take crude oil back even lower than $35. This is because it would mean crude oil is about to drop in a third wave of a larger third wave down (or C wave down). It would still have bounces before completing a retest of $35. And we can't guarantee the uber-bearish scenario is correct. If it is, then deflation would be firmly in control. Let's deal with this test of $100 carefully, and see if a reversal starts to kick in - then we'll start to get a sense of where crude oil may go from these significant levels.

Above are my daily and monthly charts of $WTIC. I've marked the near-term Fibonacci levels on my daily chart. Its StochRSI has been fine, but likely close to falling into "the neutral zone". The StochRSI on the monthly is moving up but approaching the midline - that's often a level that sends it back down again, at least for a dip if not for testing a new low.

Notice the raw volumes on the monthly chart, too. Substantial volumes on the five months of selling into the end of September. Then less volume on the almost two months' rally. This underscores the possibility that this rally may be simply an oversold bounce on the big-picture chart. It's another reason why KI$$ swing traders and investors should look at selling into strength any long positions in crude oil to avoid undue risk that crude oil turns around $100 (or $103) and resumes a downtrend.

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