The price of oil just keeps sliding.
A barrel of the gooey black stuff traded as high as $76 in early October. Today, it’s just over $51. That’s a 32% drop in a little over two months. And it’s a 10% decline from when I turned bullish on oil last month.
I was looking for oil to rally as we headed into Thanksgiving week. And, while the price did bump up a bit, oil couldn’t hold its gains. The price rolled over and slid to new lows for the year.
I was wrong on that trade. But, after yesterday’s action, it’s possible that maybe I was just early – by about a month.
Look at this updated chart of West Texas Intermediate Crude Oil (WTIC)…
When we looked at this chart last month, I noted that WTIC was stretched historically far below its 50-day moving average (MA) (the squiggly blue line on the chart). And it was sitting on the support line from last December’s low. So, it seemed to me that we had a pretty good setup for an oversold bounce.
What I failed to notice at the time was that the 9-day exponential moving average (EMA) (the squiggly red line on the chart) had been strong resistance on every bounce attempt since oil started falling in early October.
You can see on the chart that the 9-day EMA has turned back every bounce attempt in WTIC over the past two months. So, oil needs to close above its 9-day EMA in order to kick off at least a short-term rally.
That happened yesterday. WTIC closed at $52.58 per barrel. The 9-day EMA is at $51.92. So, we’re over it – by a hair.
But, that hair should do the trick.
There are several other potentially bullish developments on the WTIC chart. First off, notice how deeply oversold the MACD and RSI momentum indicators got on the recent decline. They’re more oversold now than at any time over the past year. And, while I don’t show it on this chart, these indicators are more oversold than at any time in the past four years.
Also notice how the recent pullback in price over the past week has formed a higher low on the chart. And yesterday’s action popped the price of oil back above its 9-day EMA.
These are all potentially bullish developments.
Of course, it’s tough to buy into an asset that has declined so precipitously over the past two months. It’s that old warning about not trying to catch a falling knife.
At this point, though, buying oil right here looks more to me like trying to catch a falling butter knife. I just don’t see a lot more downside here. And if oil starts to rally, there’s a lot of room for it to run before it hits the resistance of its 50-day moving average.
Best regards and good trading,
Jeff Clark
Reader Mailbag
In today’s mailbag, a Delta Report subscriber comments on the service…
Jeff, just want to say thank you again for providing this service. I continue to be amazed at your uncanny ability to “feel out” the market. Happy holidays, my friend!
– Tanner
And another subscriber thanks Jeff for his Delta Report updates…
Thank you for your perseverance. I suspect you are under constant pressure from customers for new recommendations. I am similarly interested. But I would MUCH prefer to have recommendations with a higher likelihood of success. Take your time until you feel pretty strongly. Thank you for your help.
– Bob
Do you see any downside to buying oil right now? What are your current trading tips?
As always, send any other trading questions, stories, or suggestions to [email protected].