PUBLISHED BY INSTITUTIONAL ADVISORS
May 14th, 2010
Technical observations of RossClark@shaw.ca
Crude Oil – 16 Months of Strength Was Enough
The April 16th analysis pointed out the sixteen months of strength in crude oil and the likelihood of it nearing a conclusion. The decline we experienced last week should be the beginning of pressure that could last for months.
The following chart identifies numerous rallies of fifteen or more months and the subsequent downside breaks in price of 20% to 76% within six months. Excluding the 76% decline in 2008 the average drop was 32%. Monthly Sequential Sell Setups (modified to 11, 4), as occurred in February, have coincided or preceded half of the highs. A violation of April’s $81.29 low on May 5th became a confirmation of a sell signal. A 32% break provides a targeted low just below $60.
The rising support line from $10.35 in 1998 through 2008 has been approached from the lower side during 2010. If the current decline is severe or lasts beyond six months then the parallel channel line from the December 2008 low should provide a targeted support in the low $50’s over the next year.
The weekly RSI(14) topped at 64 on April 30th. Levels of 62 to 65 or the 70’s have been the norm at 15+ month highs.
A decline of 30% in crude oil would then present an opportunity to over-weight positions in oily stocks.
On the shorter-term, prices have declined to the 50-week moving average ($74.87) and the daily RSI(14) is oversold at 29. A bounce that retraces 40% of the decline from $87 would be normal. However, a break of the moving average that sees it rollover to the downside will turn it into a resistance level and warrant the deeper break over the coming months.
BOB HOYE, INSTITUTIONAL ADVISORS
May 14th, 2010
CHARTWORKS WEBSITE:: www.institutionaladvisors.com
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