Technically Speaking

Crude Oil Trending Sideways, For Now

Source: DTN ProphetX

There is a great deal of movement in the markets these days. Gold dropped almost $150 in a day, the Dow Jones Industrial Average yo-yoing triple digits (down one day, up the next, and so on), and crude oil diving quickly from its recent highs. But a look at the latter's long-term continuous monthly chart shows the big picture for one of the Three Kings of Commodities is far less dramatic.

With crude oil one only has to go back to 2008 to see the stage was set for a sideways market. After posting its high of $147.27 in July of that year, the spot-month contract collapsed to its low of $32.48 in December 2008. I have talked about this move frequently over the years as an example of the control fundamentals, as indicated by futures spreads (middle study) had at that time over the ultimate direction of the futures market.

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Given the incredible move in crude oil over the last half of 2008, it is not all that surprising that the trend of the market has turned sideways. How could it be otherwise? The market lacks the fundamentals to push beyond the 2008 high (note the sideways trend in a slight carry/contango on the middle chart of the nearby spread) yet has enough continued noncommercial interest (bottom study) to keep from trading near the 2008 low. The last weekly CFTC Commitments of Traders report showed noncommercial traders holding a net-long futures position of 223,398 contracts.

The monthly chart itself (top chart) shows the market settling into a long-term sideways pattern between roughly $70 and $109, prices that are approximately the 33% and 67% retracement levels of the 2008 sell-off. In the short-term the market has established a range between $98 and $84 dating back to October 2012. Notice that this range is divided by the 50% retracement level near $90.

So what might the future hold for crude oil? If the trend of the futures spread turns up, reflecting a weakening carry/contango or possibly a strengthening inverse/backwardation, then a more bullish commercial view could spark rally that takes the market back to the 67% retracement level near $109. On the other hand, if noncommercial traders start to liquidate more of their net-long futures position, then the market could fall back to the series of lows between $70 and $77. And given what was discussed Wednesday with the still bearish Continuous Commodity Index, the latter seems more likely.


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Commodity trading is very complicated and the risk of loss is substantial. The author does not engage in any commodity trading activity for his own account or for others. The information provided is general, and is NOT a substitute for your own independent business judgment or the advice of a registered Commodity Trading Adviser.

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