Oil Analysis February 2015 (D,M)
Created on Sunday, 01 February 2015 13:21
Written by Austin Galt
The wait has been frustrating but I feel confident it is finally over. As far as I’m concerned, the low is now in place at the US$43.58 quote.
Let’s take a look using the daily and monthly charts.
OIL DAILY CHART
Price exploded higher on the last day of January which is just the behaviour I’ve been expecting to signal the bear is over and the bull is on. I’d like to see this move higher consolidated before a more substantial move higher takes place. Let’s see.
I have drawn a horizontal line denoting the low set on the 13 January 2015. I thought this was the final low but this week price marginally clipped that low creating a false break low. False break lows are my favourite bottoming formation as they run the stops below the previous low thereby making the coast clear to the upside, so to speak.
I often like to see a “three strikes and you’re out” low formation consisting of three consecutive lower lows. Here we have a rare fourth lower low just to make sure the job is done.
The Relative Strength Indicator (RSI) and Stochastic indicator are both showing quadruple bullish divergences on this latest low. Normally a triple bullish divergence is enough to do the trick let alone a quadruple. Price really had to take the downtrend to the limit and this pushing of the envelope also increases my confidence that this is the final low. Forget about testing the 2009 low folks. This downtrend is done! (I really will have egg on my face if I’m wrong now!!)
The Moving Average Convergence Divergence (MACD) indicator is showing a nice triple bullish divergence and trending up with a bullish bias denoted by the blue line above the red line.
OIL MONTHLY CHART
The RSI is showing an all time record low reading of 5.29. (On my 30 year chart anyway.) That is on top of last month’s record low reading. If price doesn’t rally and show some strength from here then I’ve got no idea!
The Stochastic indicator is well oversold and looking like a bullish crossover is in the midst.
The MACD indicator shows the averages have diverged quite a lot so a move back up looks in order.
I have added Fibonacci retracement levels of the move up from the 2009 low to 2011 high. I didn’t think price would even make it to the 76.4% level yet it looks to have pulled up just short of the 88.6% level at US$42.06. I have often noted price making lows between these two Fibonacci levels so I really should have seen it coming a long time ago. Also, price often likes to take things to the extremes and that is certainly the case here. Price took it to the limit without testing the 2009 low.
So, it looks like it’s time for the bulls to pin back their ears as I now expect a sharp move higher. Previous lows on the chart are all potential resistance zones but the game is up for the bears in my opinion.
Personally, I suspect price can shortly pull back to under US$45 which will see the egg frying pan heated up. But I expect a higher low will be put in place before price is up, up and away.