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by Kevin Hopson
December crude oil has been in a downward spiral for the last month-and-a-half. Though the contract failed to confirm a bottom last week, there were some positive technical developments on Monday.
Position: Hold
Kevin Hopson
Kevin has been a technical analyst for roughly 10 years now. Previously, Kevin owned his own business and acted as a registered investment advisor, specializing in energy. He was also a freelance oil analyst for Orient Trading Co., a commodity futures trading firm in Japan. Kevin is currently a freelance writer.
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TECHNICAL ANALYSIS
December Crude Oil Showing Signs of Recovery
11/19/02 10:32:02 AMby Kevin Hopson
December crude oil has been in a downward spiral for the last month-and-a-half. Though the contract failed to confirm a bottom last week, there were some positive technical developments on Monday.
Position: Hold
| I have touched on December crude oil (CLZ2) a number of times over the past few weeks. For example, I touched on December crude oil early this month, when the contract was stuck in a week-long trading range ($26.50-$27.50) after selling off most of October. This trading range (or bearish rectangle formation) indicated a further break to the downside, which eventually occurred a few days later. |
| The second time I touched on December crude oil was last week. After breaking to the downside, the contract proceeded to test a key support level (50 percent retracement from the Nov. 2001-Sept. 2002 rally). Given the contract's ability to bounce off this key retracement level, it appeared that a significant bottom had been put in. However, I warned that a move above broken support in the $26.50 to $26.70 range was needed to confirm this. |
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| Graphic provided by: SuperCharts. |
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| As you can see in the chart, this failed to occur (initially) and a slightly lower bottom was put in. This brings us to the current situation, in which December crude oil is starting to show signs of a recovery. For example, there were three significant technical developments on Monday. After the contract was able to break in the $25.50 to $25.60 range, giving a short-term buy signal in the process, the next upside target was the $25.93 level, site of the contract's 200-day moving average (MA not shown). This level acted as resistance for part of the day but was eventually taken out. However, the third and final stage was the most critical. If you look at the chart, you will notice that the $26.50 level (prior support) capped prices earlier this month and acted as key resistance for the contract. |
| Traders who bought here ($26.50) in early November but failed to get out the first time around were looking to break even on Monday, thus creating selling pressure. As a result, December crude oil's ability to overcome significant resistance in the $26.50 to $26.70 range was bullish. However, I would like to see the contract break resistance (prior support) in the $27.50 to $27.70 range to confirm that a more substantial bottom has been put in. |
Kevin has been a technical analyst for roughly 10 years now. Previously, Kevin owned his own business and acted as a registered investment advisor, specializing in energy. He was also a freelance oil analyst for Orient Trading Co., a commodity futures trading firm in Japan. Kevin is currently a freelance writer.
| Glen Allen, VA | |
| E-mail address: | hopson_1@yahoo.com |
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