Oil still has lower to go.
On November 13, we shared a forecast for crude oil.
That forecast called for an eventual move to over $100 a barrel…
But before we can get that move, oil will trade to lower prices first.
Part of the November 13 forecast said that we need to see oil stabilize above its 200-period daily moving average (MA) before it launches higher.
The 200-period MA is a technical indicator that records the average closing price of the market over the last 200 days.
And as it turns out, crude oil has not been able to establish itself over this important indicator since November 13.
At the time, oil was trading around $76. As of writing, oil is currently trading at $72. So, in over two months, oil hasn’t gone anywhere.
But that’s about to change.
A Compelling Signal
It’s all because of an important development in crude oil’s price chart.
On Friday, crude oil broke below two other important moving averages.
Those are the 20- and 50-period MAs.
You can think of the 200-MA as being a long-term trend indicator. The 20- and 50-MAs are great at showing us the short- and intermediate-term trends.
When oil broke down on Friday, all three MAs flashed an incredibly powerful signal. That’s because oil traded below all three of those MAs.
You can check this out on the chart below:
This means that the short-, intermediate-, and long-term trend indicators are all on the downside.
The only thing that could make this signal even more powerful would be if the 20-MA crosses below the 50-MA.
As you can see on the chart, the 20-MA (blue line) is still above the 50-MA (red line). But a couple more days of selling should see this bearish crossover take place.
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How Oil Will Find Support
All of this adds up to one logical conclusion – oil has lower to go before finding support. Support is an area on a price chart where buyers have previously stepped in.
If we look at another chart below, we can see that buyers have historically stepped back into the market around $67.
The last two times oil has traded down to around $67 were back in March and June of 2023.
In both instances, oil went soaring. The latest rally from June saw oil spike over 40%.
That’s why we want to keep a close eye on this price level. If oil trades lower to meet it… it would be wise to close any short positions. If history is any guide, we could see another strong bullish reaction.
Happy trading,
Imre Gams
Analyst, Market Minute