I’m not about to call an oil bottom but there certainly are some signs that suggest the bottom is drawing near. I remember thinking oil was going to bottom at 95, then 60, and here we are at 40 and all the peak oil enthusiasts are saying we are going to rebound just as fast as we have collapsed. Here’s my take on where we stand.
1. The bubble has burst in oil and then some, which most healthy corrections have to go through. Just as targets on the upside overshoot, they’re equally as cruel on the return trip.
2. Long term support does seem to be in the $40 range based on previous tops.
3. There is a long term trendline that does appear to coincide with the $40 range as support.
4. I’ve heard from the media oil targets as low as $20-25, which does seem to be a bit outrageous, indicating oil sentiment is very low.
5. It’s plausible that an worldwide recession is what is really baked into the price of oil bringing it form $148 to $40.
While it’s not inconceivable to think oil could fall further, I think it could be a bullish sign for the markets if the oil sector rebounds. I could see them both rallying in tandem as it could to some type of economic rebound. Long term high oil is bad for the markets, but shorter term it could help investors come to grips with the worldwide economy not coming to an end.
Update: I almost forgot to add this chart of USO showing the highest daily volume close since this instrument peaked back in July. Could prove to be significant showing that capitulation might be setting in.
