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TECHNICAL ANALYSIS


Kiss Crude Oil Goodbye?

10/06/09 08:45:40 AM
by Austin Passamonte

Short-term and mid-term outlook for crude oil futures.

Security:   CL
Position:   N/A

The past several years have seen a wild ride in crude oil futures (CL). The correlation of crude oil and the US dollar valuation has CL being played as a proxy currency. If they trade any tighter from here, we might as well create the symbol USD/CL for the forex world. We can only assume this current relationship will continue, and world turmoil in the currency world should keep crude oil futures equally volatile.

FIGURE 1: CL, WEEKLY
Graphic provided by: TradeStation.
 
Looking at Figure 1, the weekly chart picture for CL (adjusted for continuous contracts pricing) shows a gentle trend higher relative to the wild V-turn of two years past. It has also topped off in wedging fashion, from June through now (purple line) and accelerated from September (thin navy blue line). Two weeks ago, the support line was broken, while this past week, we saw price rise back up and close right at that price mark.

FIGURE 2: CL, DAILY
Graphic provided by: TradeStation.
 
Dialing down to the daily chart (Figure 2), we can see where this wedge formation broke down last week to the $65 level and traded back up to the $70 mark. That $70 level has been a price magnet since July, creating the midpoint of numerous daily open-close sequences.

A $5 price range on Wednesday (FOMC event) rallied right back into the wedge. Thursday was a sideways doji or session of unchanged indecision. Friday sold back out of the wedge and back below $70 again. This wedge has a value span from roughly $62 to $75, or $13 in width. When CL breaks away from this wedge pattern and makes the next directional push, it should be a straight path from $70 to $57, or $83 levels before the next pause and congestion is expected.

CL has spent the summer winding its way into a wedge formation. The inevitable break of this wedge is direction unknown, but distance measurable — $13 (low–high wedge range) from current apex point ($70–71) is the technical outlook for crude oil futures heading into the winter season ahead.



Austin Passamonte

Austin is a private trader who trades emini stock index futures intraday. He currently trades various futures markets from home in addition to managing a trader's educational forum

Title: Individual Trader
Company: CoiledMarkets.com
Address: PO Box 633
Naples, NY 14512
Website: coiledmarkets.com/blog
E-mail address: austinp44@yahoo.com

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Date: 10/07/09Rank: 5Comment: 
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