Viewing the Recent Breakdown in Oil and Rally in the Dollar

Sep 24, 2009: 4:20 PM CST

Let’s take a quick look at the daily charts of Crude Oil and the US Dollar Index as of September 24th, particularly with regard to oil’s breakdown from the ascending triangle as described in a prior post.

The lower trendline converged with the rising 50 day EMA at the $70 level… and as expected, a break beneath these would lead to a quick momentum move (that might still be in progress) on the breakout.

A negative momentum divergence preceded the price breakdown, which was a distinct non-confirmation of higher prices.

If the triangle is the dominant pattern, then the lower target would be the $60 area, which reflects the height of the triangle (roughly $10) subtracted from the breakout price at $70.

That represents “quick analysis” on this chart.  Let’s take a look at the US Dollar Index’s rise (remember – the Dollar and Oil are inversely correlated).

It’s possible that a multi-swing, positive momentum divergence is ‘kicking in’ with positive momentum building.  We’d need to see a break above the 20 day EMA at $77 before getting excited long… and of course a break above the 50 EMA at $78 before getting ‘really’ excited – a break above $78 would lock in the odds that a trend reversal had formed.

I’m also showing a tentative fractal 5-wave count (I don’t like the construction of the 5th wave as labeled) that has formed on the move down.

Bulls have a great as chance as ever to put in a short term or perhaps intermediate term trend reversal off the $76 lows (which is the “Line in the Sand”).  A break beneath $76 would likely send price down to the $71 level thanks to the overall trend structure and prior support… but again, dollar bulls have a short to stem the tide and mount a counter-trend rally that begins here.

Let’s keep watching with great interest, particularly with regard to the broader implications of a Dollar reversal here (bearish for stocks and commodities).

Corey Rosenbloom, CMT
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  • Dan de Man

    Hi Corey, Just to add to the US$ story, the ADX di+ - has just got a bullish touch for UUP. Volume also appears to almost double today. The bears maybe taking over the playground.


  • I love that phrase! Taking over the playground!

    Bears have been so beat-up that they want their share of the pie.

    So many people say the dollar is driving everything so it would certainly pay to keep a close eye on it like this. Correct - the volume surge in UUP is a major development.

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