Where I live in Buffalo, S.D., crude oil is a pretty important commodity. I suspect it is where you live, too, even though prices are nothing like they were last summer. Instead of $145 last July, now we’re talking about $45 a barrel crude oil as if it were cheap, but that’s actually more than 20% higher than it was just a month ago.
A short-covering rally on the New York Mercantile Exchange has seen April crude oil futures prices gain around $8 a barrel from the contract low of $37.12 scored in mid-February. However, before you conclude there might be another bull run in crude oil, bears still have the overall near-term technical advantage. The next major downside price objective for the crude oil bears is to produce a close below solid technical support at $40. The next upside price objective for the bulls is producing a close above solid technical resistance at $50 a barrel.
So $40 and $50 seem to be pretty important brackets for crude oil. But it isn’t just the crude oil market we are watching, as any follower of intermarket analysis knows. Crude oil traders will continue to keep one eye on the U.S. stock market for direction. Any fresh weakness in the stock market will very likely spill over into weakness in the crude oil market whereas a continued rally in stock prices will likely find crude oil futures prices tagging along on the upside.
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Crossover near?
To get a little help with my analysis, I turn to my VantagePoint Intermarket Analysis Software (www.TraderTech.com), which does suggest some fresh downside corrective price pressure on the horizon for April crude oil futures in the near term. VantagePoint is a valuable trading tool that employs intermarket analysis to forecast near-term price trends. The crude oil market has been one key “outside market” on which many other markets have focused for many months, an example of the intermarket phenomenon that occurs in all markets.
See on the VantagePoint daily crude oil chart that the predicted medium-term moving average of typical prices two days ahead (blue line) has rolled over and may be poised to produce a bearish crossover indication by moving below the actual medium-term moving average of the close (black line).
Bearish indicator
Also note on the daily chart for April crude oil futures that VantagePoint’s predicted stochastic indicator is in a bearish posture. The indicator has recently been above its upper threshold of 80, which indicates overbought conditions, and has turned down to produce a bearish crossover as the predicted stochastic line crossed below the “trigger” line of the indicator.
The predicted stochastic indicator is based on the position of the close relative to the high or low of the day. During periods of price decreases, the daily closes tend to accumulate near the daily lows. During periods of price increases, the daily closes tend to accumulate near the daily highs. VantagePoint’s predicted stochastic indicator is an oscillator designed to predict overbought and oversold conditions one day in advance.
Predicted stochastic (PStoch on the chart) predicts a 14-day stochastic oscillator (%K) one day ahead, comparing the market’s current close to its price range over a period of time. Stochastic trigger predicts a 3-day moving average (%D) of the stochastic oscillator (%K) one day ahead.
The predicted stochastic plots the two lines, predicted stochastic (%K) and stochastic trigger (%D), on a scale ranging from 0 to 100. Readings above 80 indicate an overbought condition; readings below 20 indicate an oversold condition (thresholds indicated by dashed lines on chart).
The predicted stochastic line is faster and more sensitive than the stochastic trigger line. When the predicted stochastic crosses over the stochastic trigger line in overbought (>80) or oversold (
