Analysis Of The Crude Oil Market

This is going to appear to be hindsight analysis but I’m posting it now because what I anticipated has actually taken place. BTW, I’m not taking any fundamental factors into consideration, this is based purely on the movement of price.

Here’s my chart, two different versions. One is candle sticks with buying/selling waves and volume for each wave. Then there’s the plain chart.

Plain Crude Oil Chart – Click To Enlarge

Crude Oil Wave Chart – Click To Enlarge

Let’s start with the movement of price going back to late September. By that time, it was already confirmed that Oil was in a bear trend. By looking at the wave chart, you’d see clearly by the red waves and red selling volume that sellers were clearly in control. During this time, buying waves and up-volume were nearly nonexistent. The issue then became a matter of how far the bear trend would go. As you can see, price fell from the mid-$90 level down to the mid-$40 level.

The bottom part of the chart, in which price is moving sideways, is where is gets interesting. Many people thought that this was the bottom. Those individuals believed that simply because price broke a trend line. Anyone who’s familiar with price action knows that the break of a trend line hardly ever stops a trend, if anything, it simply changes the momentum of that trend. In fact, you can see my initial trend line for this movement by the purple line. That line was violated, so I redrew it as the black trend channel. What you will also see is that I also drew horizontal lines to track the sideways price movement a.k.a trading range. The dotted horizontal lines is the trading range that developed inside of the bigger trading range. With that info out of the way let us now continue. If you would notice, price began to make lower highs and lower lows and failed to reach the top of the trading range. To me, this was a sign that the bear trend was about to resume. That was somewhat confirmed when price broke through the dotted support line. Price then rush to the second support line drawn at the swing low (also the low of the entire move). It appeared initially that there was no support at that level but an interesting thing happened. At the open today, price gapped up and moved back into the trading range which indicates that there was strong buying at that level.

What you see is a selling climax, which temporarily halted the selling pressure. Therefore, it seems to me that buyers aren’t willing to let this market fall any further…for now. ¬†What is the long-term outlook for crude oil? No one can say for sure. Personally, I’m not wholly convinced that crude will continue lower. I thought the odds of lower prices were high when I saw the last swing low taken out but today’s gap up changed the game. My opinion is that the recent drop in prices was a secondary test (more commonly referred to as a double bottom) and will lead to higher prices. What also leads me to believe that higher prices are coming is because prices fail to reach the bottom of the trend channel, in fact, you see prices gradually moving upward.What you also see is less volume on that latest down swing. I think we’ll find out really soon whether that last price drop was a secondary test. That being said, it’s going to be interesting to see where this market goes.

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One thought on “Analysis Of The Crude Oil Market

  1. Pingback: The Hardest Part About Being a Trader | Sean T. Carter

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