Oil is clearly in an intermediate term down-trend, but the futures may be getting ready to make a short-term bounce.
If/when it bounces be prepared to short.
Oil futures broke out of a long-term triangle pattern in the early summer, then broke below the moving average lines and slipped back into the triangle (the red lines on the chart), a move that coincided with a break below the psychologically-important $100-a-barrel level. That decline also confirmed a change in the intermediate-term trend, which is now clearly down.
But the market never moves in a straight line, and nothing goes down (or up) forever. To us the oil futures look like they are getting ready for a bounce.
The price has been in decline for the past nine weeks, and is now extremely oversold. A bounce is overdue – and the disappointing failure to reach agreement with Iran over the weekend may serve as the excuse to drive the price back up.
Don’t be fooled. The intermediate-term downtrend is intact, no matter what kind of short-term bounce occurs. In fact the bounce will be seen as an excuse for sellers to step in and short at a better price.
WHAT HAPPENS NEXT
We can see $97.50 – $100 as a logical target for a counter-trend bounce. We don’t see the price moving very much (if at all) past that level. We expect the return to the down trend to carry the price at least back to the long-term uptrend line, and perhaps past it.
The chart shows what we anticipate.
Chart: Oil futures, week ending Nov. 8, 2013
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