Crude Charts Have Been…Crude

Crude oil traded to $50.10 last Friday, its lowest price in a year. That’s a tumble of 35% from its peak early last month. Oversupply is the main culprit which API shows with a 10-week consecutive build. The September price advance ahead of sanctions didn’t help either, as crude became technically overbought. Today we sit at a time of year when fund managers are cautious regarding changes to their portfolios and declining oil is not unusual.

We had to go back quite some time to find similar instances to some of the recent moves. From October 29th through November 13th, 2018, WTI Crude Oil had 12 down days in a row, characterized by the close being lower than the previous day’s close. This was the longest streak of down days for WTI Crude Oil since July 18th – 30st, 1984, when it dropped for 9 straight days.

The first chart below is the recent move during Oct-Nov 2018, while the second chart is from August 1984.

The daily charts look extreme, but days are short time frames. Looking at the bigger picture on a weekly chart, oil has had multiple painful declines in the not-so-distant past. During 2014 – 2016, oil suffered three multi-month declines, losing between 39%-60% from highs to lows during the moves.

The current monthly and weekly charts show the large 35% decline, along with another sign not to ignore. Oil closed below its 50 month and 200 week moving averages last week. A close below a significant average should be given attention to see if there is follow through below (very bearish) or if it can break above and then use that line as a support level (bear trap, bullish). The RSI (14) level on the weekly chart has touched into the oversold region which it has not seen since early 2016 before the large advance off the $26 bottom (lower chart).

The last chart-

Levels to watch include a rough trendline near $50, another one near $47.50 and a strong support around $42. Resistance above can be viewed near $55 along the moving averages in the low $50’s, which are above the current price.

The lower oscillator is the weekly Money Flow Index. It is very low and still declining. This indicator in the past has turned upward near bottom troughs. It is important to be patient for the turn though, as one can see in late 2014 – early 2015, MFI stayed at zero for weeks before advancing.

Overall, predicting the price of oil at anytime can be a losing battle, especially before an OPEC meeting like the one next week. In the meantime, the following items that could be looked at for support levels in the low $50’s.

• $52 is near the 200-week moving average
• $53.50 is near the 50-month moving average
• RSI is in oversold territory
• Low Money Flow Index reading (watching for a reversal)
• $50 is a nice round psychological number that can be thought of as support also

Note: The continuous contract on Stockcharts was used for the charts.