Color Crude Oil Daily Charts May 20

May 20, 2010: 2:48 PM CST

Despite all the volatility in the stock market, crude oil has been falling almost in a straight line, and a lot of people are unaware of this major sell-off in such a major commodity.

Let’s take two perspectives, focusing on divergences, of the entire rally phase and the current range breakout to the downside.

First, the volatility color chart of Crude Oil:

What we’re seeing is a volatility color bar change, based on Average True Range, and price as contained within a parallel trend channel from July 2009 until the present range breakdown.

Underneath, we see the ‘color’ 3/10 momentum oscillator as failing to confirm the rally phase – starting in October 2009 – as a lengthy negative “multi-swing” divergence formed to undercut the recent highs.  Odds favored a reversal… and we certainly got it.

The current daily bar just flashed purple, which indicates that price has moved 6 times the daily average true range (ATR) from the recent continuous futures contract high at $92.00.

You can see the last two times the color bar turned purple in a similar situation – the January 2010 high and the October 2009 swing high.  On both occasions, that bar marked the peak of the swing.

Keep in mind that the price of the continuous contract, as shown in TradeStation, will be different than historical prices due to the way the program handles the roll-over of futures each month.

For a pure price view, we can see a similar chart, just this time without the color bars:

The lesson is that multi-swing negative divergences as price continues to rally, when combined with a break of an established rising trendline, often results in a great short-sale set-up and a reversal in price, as shown above.

It’s not just recently – look back to March 2009 when price reversed off the multi-swing positive momentum divergence and then broke the declining trendline in April.  That was a nice buy set-up/signal as well.

Divergences do matter – it’s just that we don’t know WHEN they will matter.

Corey Rosenbloom, CMT
Afraid to

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8 Responses to “Color Crude Oil Daily Charts May 20”

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  3. terlyn Says:

    How do you measure this?

  4. Dan Omaha Says:

    Oil has been a day traders dream the last few days

  5. gucci Says:

    Oil,How do you measure this?

  6. TheYenGuy Says:

    The current price of $70 goes back on the weekly chart to July 2007. Tyler Durden writes in article US Begins Massive Military Build Up Around Iran, Sending Up To 4 New Carrier Groups In Region, that.over at Debkafile we read that the president has decided to “boost US military strength in the Mediterranean and Persian Gulf regions in the short term with an extra air and naval strike forces and 6,000 Marine and sea combatants.” So it looks that at some point in time there will be a military strike either by the US or Israel on Iran to deter its nuclear ambitions. And then the price of oil may go back up again. But for now, it's conceivable that oil could go easily down to $60.

    Smart investors were those who invested in the the bear market ETF SCO — 200% short crude oil; it has increased dramatically since May 1, 2010.

    One can use the screener to see charts of these bear market ETFS: SRS, SJH, SSG, EEV, SMN, SMK, BZQ, SIJ, EPV, FXP, SCO.

    Since April 24, 2010 gains on them have been as follows:

    SCO 48%

    BZQ 46%

    SMN 39%

    EPV 37%

    SMK 36%

    EEV 35%

    SJH 30%

    SSG 28%

    SIJ 28%

    FXP 24%

    SRS 23%

    Personally I favor investment in gold coins and gold at as I believe a liquidity evaporation is coming soon where one may not have access to one's money in money market accounts and in brokerage accounts.

  7. Bea Says:

    Corey, can you do an updated chart on gold and where it's going? TIA.

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