A Daily Look at Crude Oil Developing Reversal

Mar 9, 2009: 12:06 PM CST

I’ve been watching Crude Oil very closely to see if we’d ever get a reversal as expected off these lows.  Let’s take a look at the Daily Chart to see where we are and whether a possible reversal to the upside might be developing.


(Click for larger image)

Are we finally getting that reversal that seems so obvious to everyone?  Maybe.

Price is developing one of the most massive multi-swing positive momentum divergences I’ve ever seen and it appears that odds are decent that price will break-above the falling 50 day EMA here.

Price is just slightly above both the 20 and 50 day EMAs, but be aware that the moving averages remain in the most bearish orientation possible and any move up would by definition be a counter-trend move.

Price has found support above the $35 index level and resistance seems to be forming a price arc about the 50 day EMA as price has traveled to new lows.

Crude Oil certainly isn’t guaranteed to go up from here, but it is perhaps setting up a decent to excellent risk/reward ratio – that of strong support about the $35 level and wide-open space to run-up should we actually break and hold above $45.

Keep watching Crude for any signs of positive life and do further analysis on your own into this interesting but tricky commodity.

Corey Rosenbloom
Afraid to Trade.com

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Comments
  • tgarfield
    I really like your blog and recommend it on stockhouse boards. Oil ETF's have issues that not intuative that come from the contract roll over. Losses occur on the ETF's that do not occur on oil. Besides the rebalancing losses, there is also contango. These two effects have accounted for over half the loss on a fund like HOU. Because of these effects. A trader should chart oil THEN trade the fund. The chart can be misleading otherwise.

    As an interesting chart, could you chart the SPY against the dollar index or the CDN dollar? The SPY has not dropped that much in CDN dollar terms.
  • hi Corey and everyone,

    I also think there is a typical supply and demand imbalance. The OPEC has reportet for years that it has the same reserves. How can this be? You don't have to be a geologist to know that the ressources won't last forever. Yes there are other reserves (Russia, Afrika, Kanada...), but those countries have not shown that they are capable of supporting the oil industry well. And if they finally do, it's gonna take years till the oil finally comes to the market...

    What do you think ist the best instrument to profit from a long term upward trend in oil? (also considering potential payment risk) I am also thinking of buying Companies like Conoco Philips, BHP ans hold them as an investment. And I am defininately not leveraging on oil, only an investment...

    best greetings

    (hope my english makes sense, as I am an 21 year old austrian guy! ;-)
  • Neil,

    I'm not really seeing the neg. divergence in stochastics, because it doesn't have much more room to go to the upside. That's the problem with 'bound' oscillators.

    I'll have to look into it more but it just feels like we have more room to run up than down but as a disclaimer, because of the divergence and very cheap prices (having accustomed myself to oil at $150), I am wildly bullish crude oil so I might be slightly biased.
  • Anon,

    I'm finding Oil's Wave structure difficult. I'm able to count it much easier on the Monthly Chart, and am assuming we're starting a B Wave up but as for the lower-timeframe fractals, it's more murky for me.
  • Neil
    Hi corey,
    Great post again ...I agree with the massive positive divergence in the macd thats been there from sometime, but if we see the daily charts, there's just a little hitch about going long. Because, if we see the slow stochastics, its forming a negative divergence, though the k line hasn't yet crossed over d line, so will have to wait for that signal for any confirmation of a correction. Secondly another resistance that I see is the 100 day sma which is at 49.2 as of today. so if the divergence happens in stochsticcs after today's close, I might want to go short with a stop of above the 100 day sma, and then look for fib levels to cover my shorts. But first of all I would want to wait for the crossover of the stochastics for the confirmation of the divergence

    Would love to know of your insight about this analysis.

    Thanks in advance.
  • Anonymous
    Oil appears to be in the corrective 4 ... a lower 5 anticipated...but not promised!
  • Andrew & Valentin,

    Perhaps, but the only problem with DXO is something I think most people just aren't seeing which reflects the realities of double leveraged funds.

    A 20% move in DXO - which would be a 10% move in crude - would result in a $0.40 move in DXO. Not that impressive from a dollar standpoint. You'd have to purchase thousands of shares to make it really worth it.
  • Valentin,

    I don't know if it's just because oil used to be so high that we're just conditioned to believe it can't be this low but something feels really odd about crude being this low and gasoline prices falling from $4.30 to $1.50 in a few months. Almost like we're in a parallel world which affects our analysis (as in, crude can't be this cheap!)

    Long term, it does seem like the obvious thing to do here it load up and hold for a few years but given that oil keeps creeping lower, we may need to wait for a buy signal - which could be coming soon - to materialize.
  • Dave,

    There's some interesting stuff and interesting inflection points on many markets right now - making forecasting difficult but the risk-reward ratios very favorable.

    Feels like we're at major inflection points where markets could turn sharply either way.
  • Reggie,

    Perhaps but I think odds are good we hold above support.

    If not, the risk is low compared to the potential reward, making this more of a dollar winner than an accuracy winner.
  • Andrew Stanton
    DXO
  • I also look at Oil from a fundamental perspective.
    I am very confinced that the prices can't stay that cheap over the long term.

    Where will the oil come from to keep prices down?!

    Saudi's reserves? I dont think so...
  • DaveB
    I've had my eye on oil as well... it might soon be time for me to get in.

    Off topic but still commodity-related... I notice the $XAU and $HUI formed dojis Friday after rallying back up to their 50emas. This after being rejected at the 200 day. Even more bearishly they both had clean rejections at their weekly 50emas a couple of weeks ago and turned sharply lower. So the daily timeframe appears to be telling us that the bearish weekly action may be likely to continue.

    The metal is stronger than the stocks and GLD did bounce at the daily 50 ema last week, but turned back sharply at the 20 today. Let's see what happens here, maybe it will be time to get back into DZZ...
  • Reggie Perrin
    False break of the moving averages? (aaargh !!!)
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