Oil at a Crossroad

With the ECB action being all the rage this past week,and speculation about it dominating the headlines for the past month or so,a few interesting moves in the oil price might have been slightly overlooked by investors as they focused on the rising bourses.Let us remedy that.

Oil (WTI) has rebounded quite significantly recently after failing to breach below the 75$ mark that could push it much further on the downside.Instead,after the June lows of 77.2$,it has now climbed back in the 93-97$ price range while exhibiting relevant stability,particularly for the past three weeks,with volatility being suppressed and the OVX(Oil Volatility Index) at 32.77.

This rise has now brought it in a technically critical territory as the 200 MA is close to being breached for the second time after 22/8 when the price retracted and two “close calls” in recent days.This was preceded by the breaking of the 100 MA by the 50 MA and the move by the price towards the upper band of a long term downward channel as well as the short-term bearish trendline as seen in the chart below.

Moreover,the 200 MA is now running parallel to the 38.2% fibo level that covers the full range of an M-pattern movement that commenced exactly 2 years ago and is still under formation-possibly culminating in a wedge-like formation,though it is still premature to say.A convincing breaking of the two would be a solid indication of a further rise ahead that would aim above the 100$ mark.If so,the upper band of the downward channel will likely be reached mid-term.As can also be seen in the chart,Oil has been trading above the Gann line defined by the June lows consistently for its rise but only this past week did it broke below it.Should the combined support of the 200 MA,the fibo level of 38.2% and the Gann line is not breached,then a consolidation in the 91-95$ level is to be expected.

In the longer term,the development of the wedge-pattern is to be given special attention for it can culminate in either a strong upper or downward movement.The macro bull trendline connecting the three lows of August 2010,October 2011 and June 2012 can form the lower band of such an upward movement that results eventually in a W-pattern.The Gann line drawn in the charts can likely provide a guide as to the future form of the second “/” part of the W-pattern if this bullish scenario is to materialize.In any case,Oil is at a critical short-term crossroad that can affect its macro trends in a profound way.


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