6/23/2012 OIL #5

Light Sweet Crude Oil (/CL)

(Weekly)

-          Oil future dropped sharply in the last few weeks therefore I'm expecting some sort of pullback to happen. As it comes down to the support levels, short-sellers will probably cash in some profit by covering some of their positions, bringing some more buying pressure to the oil future market.

-          A major support level in this chart is the range bottom level @ $75.3. This level isn’t just the low of 2011 trading range, it is also where the future price double bottomed, therefore some buying volume should be seen around this level. However, if this level doesn’t hold, the next major support will be the 2010 consolidation range bottom @ $69.48.

-          The 200 SMA (white in color) is always a big support, even the future price dropped through it last week, as long as the next weekly candlestick doesn’t opens and closes below the 200 SMA, using the white moving average as support is still valid.  

-          The uptrend line from a few years back indicates the future is at the low of the trading channel, if this trend line holds, a bounce should happen in the next 1 to 2 week.

-          I drop a Fibonacci retracement study for the reason down move. When a pullback happens, I usually look for the price rises back to the 50% retracement of the 1^st move @ $92, then reverses and continues in the 1^st move’s direction (3^rd move). The other percentage levels can be reversal points too depending on the strength of the future; the deeper it pullbacks, the weaker the 3^rd move will be.   

(Daily)

-          The oil future was trading in a range @ $81.07 - $86.53 for the last 3 weeks until it broke to the down side on Thursday. The ranged move, highlighted in dark green, was a consolidation, the move highlighted in light blue were the 1^st and 3^rd moves, showing a complete 1-2-3 pattern. Notice that there’s still some room for the 3^rd move to go a little further, unless the future rises back in to the $81.07 - $86.53 range again, otherwise expect the future completes the 3^rd move near the 2012 range bottom @$75.3.

-          A bearish golden cross in this chart suggests a continuous bearish trend and triggered the breakdown a week after the signal occurred. Nevertheless, as the future comes down to multiple support levels, the strength of the bearish signal shall diminish.

-          When a pullback happens, the future should find some resistance back in the range, especially at the range top @ $86.53. Another resistance level is the previously double bottom confirmation level @$90.09. By the time the future rises up to this point, the 50 day moving average (50 SMA, grey in color) and the downtrend line from the previous downtrend channel will serve as resistances, pressuring the future from rising any further.

(Hourly)

-          The oil future broke out from an inverted head & shoulders pattern last Friday, the target on the break out is the range bottom level @ $81.07, which was the beginning of the pattern. The breakout move isn’t done yet, if by any chance the future price retreats, the neckline level@ $78.76 of this pattern will be a support.

-          Draw a downtrend line connecting all the recent tops will give you a better picture to see where the next top should be when the future moves back into the range. On the other hand, there is a 200 SMA (white in color) serves as another short term resistance when the future price trades in the range again.

 I hope this post offers you some insight, thank you for reading and please feel free to give me some feedback.