Crude Oil Dips Beneath $70

Oct 22, 2008: 10:38 AM CST

Who would have expected such a headline on Crude Oil just five or so months ago?!  Today, it happened, with Crude oil trading just above $68 per barrel in the morning session on Wednesday.  Let’s look at the weekly and daily charts to see how this happened and what might be in store.

Crude Oil Weekly:

Note – the chart for Crude Oil – $WTIC – in StockCharts updates with end-of-day data, so it’s not showing the current sub-$70 prices yet.

Crude oil peaked just shy of $150 per barrel in July before falling over 50% to their current level in late-October.  Price cut all levels of support, both from Fibonacci retracements and moving average support with only a minimal retracement to the upside (on its sharp pathway down).  Price has also formed a new momentum low (“NML” on the chart) which is often a precursor to lower prices yet to come (following a retracement up).

Price is now testing the rising 200 week moving average, which is expected to provide support to prices, but it appears – at the time of this writing – that even that level is not holding price in check.  There are reports that OPEC will meet to cut production (reduce supply) which is expected also to give a boost to prices, or at least stave off some of the rampant selling in the commodity.

Common perception is that crude oil is falling due to “Demand Destruction” associated with a global impending recession, where companies will be downsizing/closing, retail sales will decline, and thus transportation costs (needs) will decline as well as airline travel and other sorts of economic factors that require gasoline (and products) to get supplies/people from one place to another.

Falling crude prices are deemed to be a boost to consumers, as falling gas prices at the pump helps consumers keep more in their pockets – all of which will be very needed if the economic conditions continue to deteriorate.

Let’s zoom the chart in to the daily chart.

Crude Oil Daily:

We see the progression of three “new momentum lows” on the chart as price moved steadily to the downside.

Price initially found support about the 200 day moving average, but failed at the confluence zone of the 20 and 50 EMAs overhead.  Selling accelerated as price broke the 200 average.

A clean retracement took price back to the ‘super-confluence’ zone of the 20, 50, and 200 period moving averages… where it failed to overcome such resistance and traveled lower into new October lows.

Despite all the red (selling), there’s a potential for good news, at least according to a simple Elliott Wave count (not labeled).

The initial price thrust down to the 200 period MA could be Wave 1; the flat retracement before breaking the 200 MA could be Wave 2.

Wave 3 may have occurred when price broke to new lows in September while Wave 4 was a quick, four day solid advance to the confluence resistance zone which then led to new October lows in the current Wave 5.

IF this is the correct count, then Wave 5 is expected to end soon, and upon its termination, the “ABC” Corrective phase will commence, which could take price as high as $100 (in time) as these three waves begin (A wave up; B wave back down; C wave back up).

Let’s see if this indeed is the case, and if so, it might be a good idea to exit short trades in oil soon.

As a special Bonus, I wanted to include a link to the Market Club’s Third Quarter ‘trade triangle’ trading results (performance) in Crude Oil.  They reported six ‘trade triangle entry’ trades, with four winners (capturing the trend moves) and two losers, for a potential gain of over $20,000 for pure signal-based traders using their software (slippage and trade size will affect results – they quote results based on trading one futures contract).  Check out the video for more information.

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Published by Corey Rosenbloom of Afraid to Trade.   Click to receive the Afraid to Trade Feed.

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7 Comments

7 Responses to “Crude Oil Dips Beneath $70”

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  2. Corey Rosenbloom Says:

    Narayana,

    No, none of my posts are sponsored by Market Club or any other company but I am an affiliate member of Market Club and do receive a small commission per each membership. It is currently the only form of advertisement I present on the blog because I believe in the product, their mission, focus on education, and training. I disagreed with some of the content and focus of Google Adwords and the Forbes blogger network so I promptly removed those. I have also declined other affiliate memberships and only display or promote products with which I’m familiar or support.

    I am also an affiliate of Tradecision, though I don’t promote it as often as I should. It’s wonderful for back-testing but I’m used to TradeStation’s methodology, though Tradecision offers styles of testing – like neural networking and algorithmic trading – that I can’t find anywhere else.

    Also, I do not attempt to ‘cloak’ the link to MarketClub sites so that users know it is part of a ‘campaign’ (the word campaign is provided in the link).

    I have a good relationship with the writers/authors in MarketClub and have been strongly impressed with them, especially their INO.com video education (that, also, I might not promote enough).

    The first month – of MarketClub – is free and one can use a 6 month subscription for less if need be to see how the product/service works for your individual needs.

    Good question!

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