Television commentators tend to follow crude oil prices higher and then lower, but with no context of the pace of the movements nor the possibility of a trend change. The focus on oil prices and for the average consumer -- gasoline prices -- is understandable. Gasoline prices have replaced the weather and sports -- until now -- in everyday conversation.
Let's look at the charts and some indicators that have a positive track record in spotting reversals.
In this daily bar chart of the continuous futures contract of crude oil, below, we can see a strong rally from December to early March followed by a correction and then another upside attempt. Prices made a lower high in June and have slowed worked lower.
Lower gasoline prices have been translated into peak inflation by many commentators. Prices are trading below the declining 50-day and the cresting 200-day moving averages. The On-Balance-Volume (OBV) line did not peak until June and its subsequent decline has been slow. The 12-day price momentum study shows a pattern of higher lows from late June for a bullish divergence -- prices are moving lower but the indicator is going higher. The pace of the decline in prices has been slowing and that can foreshadow a price reversal.
In this second daily bar chart of crude oil futures, below, we used the 10-day and 20-day moving averages. 50-day and 200-day moving averages are really not used by active futures traders. The crossing of the 10-day and 20-day average lines give clear buy and sell signals.
In this weekly Japanese candlestick chart of crude, below, we see a mixed picture. Prices are trading below the 40-week moving average line but chart support is likely around $80 - the highs of late 2021. The 12-week price momentum study in the lower panel is showing a momentum peak and this is how a reversal can start.
In this daily Point and Figure chart of crude, below, we can see a potential downside price target in the $77 area. Not the end of the world. A rally back above $88 could start an upside reversal.
In this weekly Point and Figure chart of crude, a $67 price target is shown.
Bottom line strategy: Commentators like to look like they are one the right side of market movers. Trying to identify price reversals is not part of their job description, but it is part of my mind set. Energy traders should stay nimble and on guard for a bottom reversal in the week ahead.
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