June 4th, 2023

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Oil Market update

by Clive Maund
July 29th, 2006

The oil and oil share market is on the cusp - the cusp of a breakdown. On the 6-month chart for Light Crude we can see that the breakout earlier this month appears to have been a false breakout, as it has been followed by a swift reversal that has already eliminated all of the gains. Furthermore, a particularly neat Head-and-Shoulders top has formed, above a line of support in the $73 - $73.50 area, which implies that the price will soon crash this support and drop swiftly back to the $68 minimum measuring requirement of the Head-and-Shoulders and more likely somewhat further, back to the next strong support shown in the $60 - $64 area. On longer-term charts the bull market in oil appears to have been losing upside momentum for some time.

Oil shares on the other hand have risen sharply over the past week, possibly because many oil traders have only a hazy idea of the geography of the middle-east, and donít realize that Lebanon is not bristling with oil wells. Longer-term, however, oil bulls will no doubt be able to take heart from the fact that the Lebanon attack is just a preparatory move for an assault on Syria, and then the ultimate prize, Iran. Today though, the advance in oil shares ran into trouble. On the 6-month chart for the OIX oil index, we can see that oil shares rose substantially again intraday, but closed near the days lows - after a sharp advance, this is bearish action. Taken in conjunction with the near-term bearish outlook for crude, this suggests an abrupt reversal, particularly as the index is now running a large gap with its 50-day moving average.

The 1-year chart for the OIX index enables us to relate recent action to the larger uptrend in oil stocks. On this chart we can readily see why it has been a tricky time for oil share traders. Early in June the index broke down from a potentially bearish Rising Wedge, only to whipsaw strongly back above it and then run quickly at the top line of the channel.

With regard to our trading, we had correctly sold at the peak early this month, in anticipation of a rollover. The rollover duly occurred, but since then neither condition for re-entering the market has been satisfied, namely a drop back to the zone between the lower trendline and the 200-day moving average, or a break above 660. Todayís run toward 660 has clearly failed, and thus the picture looks bearish near-term, as this action constitutes failure at the upper channel line.

Clive Maund

Clive Maund is an English technical analyst, holding a diploma from the Society of Technical Analysts, Cambridge and living in southern in Copiapo, Chile.

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No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Copyright © 2003-2006 CliveMaund. All Rights Reserved.

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