Oil Update February 2015 (D,W)
Created on Thursday, 12 February 2015 13:11
Written by Austin Galt
Oil has traded up impulsively since its recent low at US$43.58. I believe the downtrend is done but it is clearly still too early to confirm that. So let’s investigate the current situation using the daily and weekly charts.
OIL DAILY CHART
We can see the impulsive move off the low only needed four candles or four days to put on over 20% in gains. This move higher also took out the previous swing high which is denoted by the horizontal line. So we have a higher high in place and now just await a higher low to confirm a daily bull trend.
The Parabolic Stop and Reverse (PSAR) indicator shows price has just recently busted the dots on the downside so a bearish bias is in force. As often happens in these cases, price then goes up to test the dots which are now on the upside and represent resistance.
The Relative Strength Indicator (RSI) shows a recent new high which indicates strength. It has been trending down since and that downtrend may not end until a higher low is in place.
The Stochastic indicator is also trending down and looking bearish.
I have added a 14 period moving average, denoted by the purple line, and I favour price oscillating around this line before a more substantial move up commences.
So where is the higher low likely to be?
The first correction in a new bull trend often makes a deep retracement and I think that is what will happen here. Especially given the strength of the recent downtrend. That negativity is still probably washing itself out.
I have added Fibonacci retracement levels of the recent move up from low to recent high. Personally, I favour a move back to the 88.6% level at US$44.80 while close attention will also need to be given to the 76.4% level at US$46.10.
Let’s move on to the weekly chart.
OIL WEEKLY CHART
The Stochastic and Moving Average Convergence Divergence (MACD) indicators have both made recent bullish crossovers and are trending up bullishly.
The PSAR indicator now has a bullish bias with the dots underneath price. These dots stand at US$43.90 and represent support.
While I believe the downtrend is over, let’s not beat around the bush. There is still a lot of work to do to get things back on track for the bulls. The moving averages I have added to the chart testify to that. These averages, with time periods of 14 (purple), 50 (blue), 100 (red) and 200 (black), are in order representing a downtrend with the 200ma the highest and the 14ma the lowest. Price will need to rise up to these averages and then likely oscillate around them as it waits for the order to switch with the 14ma moving to the highest position and the 200ma moving to the lowest. This will take some time folks.
But big things begin with small things and we already have our first indications that the next bull trend may have started.