Market Strategy

Crude oil losing bullish momentum

Yoganand D. | Updated on February 16, 2013 Published on February 16, 2013

The US light crude oil finished lower on Friday declining by $1.45 or 1.5 per cent to end at $95.8 a barrel on the New York Mercantile Exchange. It witnessed a volatile week swinging to an intra-week high of $98.1, before trimming gains and ending flat for the week.

After forming a strong base at around $85 between late October and early December 2012, crude oil started trending up. Since then, it has been on a medium-term uptrend.

However, in late January 2013, crude oil encountered resistance at $98 and began to decline after testing the resistance again last week.

Light crude oil has been in a broad sideways consolidation phase in the intermediate-term, trading between $85 and $100 from July 2012.

Medium-term view

Crude oil is losing its bullish momentum after encountering resistance at $98 in late January. Its daily price rate of change indicator is displaying negative divergence indicating a potential trend reversal.

On Friday, it fell 1.5 per cent closing below its 21-day moving average. Both daily and weekly relative strength indices are hovering in the neutral region. The daily moving average convergence divergence indicator has been moving lower in line with crude oil price for the past two weeks. Immediate support is positioned at $94.

A strong fall below this support will pull crude oil price down to $92 or to $90 in the short- to medium-term. A strong decline below $90 will mar the medium-term uptrend and pull the commodity’s price down to $87 or to $85 in the ensuing months.

However, a decisive jump above $98 can push crude oil price to $100. Strong breakthrough above $100 is needed to strengthen the bullish momentum and take the commodity higher to $105 in the medium-term.

Intermediate-term view

Light crude oil has significant resistance at $100. An emphatic up move above this resistance will accelerate crude oil price to $105 and then to its next key resistance level at $110 in the intermediate-term.

On the other hand, conclusive tumble below the key long-term base at $85 will pave the way for a decline to $80 or even to $75 in the same time frame.


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