The Exchange

Are Crude Oil Prices Setting Up For An Autumn Bottom?

The Exchange

By Andrew Nyquist

Andrew Nyquist is a private investor who lives in Minneapolis with his wife and 3 kids. He is the founder and editor-in-chief of See It Market which provides smart, actionable market commentary daily.

As global equity markets continue a strong move higher into Options Expiration week, something seems to be missing. Yup, Crude Oil prices aren’t playing along. In fact, Crude Oil has been mired in a steady grind lower, unaffected by the wild swing in equities. So, what’s up with the black gold?

Well, relative weakness in Crude Oil prices seem to be telling investors a couple things:

  1. The short-term rush higher in equity prices may be fleeting.
  2. Crude Oil isn’t quite ready for prime time… yet.

While equities have made a u-turn higher into OpEx, Crude Oil prices have been asleep at the wheel:

Options expiration will likely provide the impetus for the major equity indices to test or record all-time highs. But, if Crude Oil prices don’t perk up soon, it may be difficult for equities to continue this momentous move much beyond options expiration.

Speaking of short-term, here is a chart of Crude Oil that highlights the recent chop lower from the August highs even as equities near new highs.

And considering that Crude Oil prices peaked in late August, I thought it would be a good idea to put up a weekly chart for some perspective (see below). First and foremost, it should be noted that the intermediate term trend is not bearish. Looks more like bullish basing: Both intermediate term trend lines are in tact and price is in the upper half of the channel. As well, Crude is holding above 4 major intermediate support levels:

  1. The 200 day moving average (dma) around $98
  2. The 15 month uptrend line around $92
  3. The 3+ year trend line from the 2010 lows around $86
  4. The lower channel support around $77.

While the 200 dma holds some psychological weight, I’m more concerned about the recent trend lines at $92, and perhaps $86.

Zooming in on the weekly chart for Crude Oil, my eyes are drawn to the nasty reversal candlestick recorded in late August; that long wick foretold the recent rough patch in Crude Oil prices. And with the weekly buy setup on 5 out of 9, Crude may continue to be pressured. Note that a continuation of this setup would place a Crude Oil bottom in early Novmember… And barring a complete collapse, this pullback should present a tradable buying opportunity.

Trade safe, trade disciplined.

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