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Oil, important low close−but not quite there....

Tue, Dec 2 2008, 05:44 GMT
by David Solin

FXA

Crude oil futures continue to chop from the Oct 27th low at $61.30 (also longer term support, see below). Note too that the market is oversold after the sharp declines since Sept and even the larger decline from the July high at $147.27 (down nearly 60%), while the daily macd has recently given a new buy signal (see bottom of daily chart below).
This in turn suggests that risk is rising for at least at $20/bbl bounce and possibly more.
However, there is little to suggest that trade from the $61.30 low is anything more than a correction “pattern-wise”, while the seasonal charts point lower into mid Dec (see 2nd chart below), and raises scope for at least some further downside over the near term. Just not seen as a good risk/reward on either side of the market at current levels (too late/risky to chase the market lower as the downside appears to be limited but given the seemingly high risk for at least some further new lows, its too early to buy). So for now, would just stay patient for a better risk/reward entry ahead (expected to be on the long side at lower levels). Nearby resistance is seen at $71.75/00 (yesterday’s high) and the ceiling of the 2 month bearish channel (currently at $80.00, also a 38% retracement from the Sept 23rd high at $109.58).

Longer term as mentioned above, the market is chopping near support at $61/62 (both a 62% retracement from the 1998 low at $10.35 and the 5 year bullish trendline).
However, with no signs of a bottom “pattern-wise” there is scope for another near term downleg to complete a more important (multi-month) bottom. “Ideally” this bottom would occur in the mid Dec timeframe, concurrent with the seasonal charts and also the broader financial market cycle reversing at that time (see weekly chart/3rd chart below). Next support below $61/62 is seen at the 7 year bullish trendline (currently at $53/54).

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Published on  Tue, Dec 2 2008, 05:44 GMT