[B]CRUDE LOOKS LIKE IT MIGHT BE BOTTOMING[/B]
[B]Crude oil and Inverted DXY, Daily[/B]
In my analysis from February 5th I suggested that the crude oil could be close to levels it might bottom out. At the time I wrote: The price of oil has collapsed with the strengthening dollar and has reached levels that were last seen in the later stages of the financial crisis in 2008. This suggests that the current levels are deeply oversold both fundamentally and technically. The world economy is certainly slowing down but it is in a better shape than it was in the first quarter of 2009 when the US crude oil futures dropped to $33.35. Therefore, it makes sense to expect crude oil to be relatively close to the levels it could find a bottom.
Now it does look like crude oil is indeed bottoming. Since January price has moved sideways and even shown some relative strength against the USD. As crude is priced in the US dollars any up moves in the US Dollar Index (DXY) should mean the price of oil goes down. However, since the end of January DXY has move higher while crude has moved sideways and has therefore showed some relative strength. As can be seen from the above chart with crude oil in black and inverted DXY in blue the strength of crude was really taken to new levels at the midway of March. Together with the fact that the crude oil has been trading levels close to the 2009 low suggests to me that we are witnessing bottoming action in the price of crude.
[B]Crude oil, Weekly[/B]
Since forming a hammer candle in March the price of crude oil has been trending higher and making consecutive higher closes. Now price has moved well beyond the 53.60 resistance level. This confirms the bullishness and suggests that the price has bottomed. After such a long sideways move and relative strength against the DXY it is now more likely that price will find buyers if it retraces back to the support levels. Now that the Stochastics is indicating crude is getting overbought the next challenge for buyers is likely to be around the 23.6% Fibonacci level and the upper Bollinger Bands that are nearby. The most important support levels are at 53.60 and 46.53.
[B]Crude oil, Daily[/B]
Price is trending higher in a channel and has with yesterday’s rally moved outside the upper Bollinger Bands. This suggests that the market is getting overbought in the short term. Stochastics are in the overbought territory supporting the indication from Bollinger Bands. Also, price is getting close to the channel top. The support at 53.60 looks like a logical retracement level and it coincides roughly with 23.6% Fibonacci level. I have not drawn the Fibs on the chart to maintain a better readability. Should the 53.60 support fail to hold, the next potential support level is at 50.25.
[B]Crude oil, 240 min[/B]
Price has reacted with a shooting star candle and is now inside the upper Bollinger Bands. This suggests the corrective could be already underway. Stochastics support the idea as they are overbought and pointing lower.
Long term picture is bullish with the price of oil showing clear signs of market bottoming. In medium term, ie the daily trend crude is bound to move higher but might retrace first. The intraday picture is overbought and therefore bearish. I look for correction lower intraday and then keep an eye on 53.60 support region for buy signals.
Chief Market Analyst
Disclaimer: Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of purchase or sale of any financial instrument.