What this chart tells me about Crude Oil
Today is a very important day in the life of
Crude Oil. The Continuous Contract has fallen to the top of the window (gap)
that was created on April 11th when the commodity was able to open around the
$71 area and break above three previous peaks formed at $68 and some change.
Yesterday the continuous contract did break below on its’ low, and also closed
under, the area at the top of the window. This break below is a violation of the
top of the window’s support. However, I view the break as not actionable because
it was not by a significant enough margin and the bottom of the window can also
serve as support. In addition, a hammer candle formed yesterday. Hammer candles
can sometimes be bottoming formations. If the hammer does not prove to be the
end of the decline, the next area of support will be the bottom of the window,
back to the $68 area.
The question becomes whether or not to go long here (either the commodity or
stocks that underlie the commodity) as there is some significant resistance
turned support just a little bit lower in price than where we are now and also
the fact that the window mentioned above should provide significant support. The
proposition is a bit risky as the contract, could, of course, again break
through the top of the window (gap), and also break through the support at the
bottom of the window ($68). This action would negate the proposed $78/$79 per
barrel price objective that I proposed when the gap was first created.
However, the relative strength ratio of Crude Oil Continuous versus the S&P 500
remains firmly in a rising trend. This pullback in the contract, therefore,
should be a buying opportunity for investors, especially stock investors. For
those of you who buy the commodity directly, I would advise waiting a day or two
to just make sure that the support can hold, or, alternatively, be prepared to
move quickly if it does not. For stock investors, iShares has come out with two
new ways to buy the energy market,
(
IEO |
Quote |
Chart |
News |
PowerRating) (iShares Dow Jones U.S. Oil & Gas
Exploration & Production Index Fund) and
(
IEZ |
Quote |
Chart |
News |
PowerRating) (iShares Dow Jones U.S. Oil
Equipment & Services Index Fund). I prefer
(
IYE |
Quote |
Chart |
News |
PowerRating) (iShares Dow Jones U.S.
Energy Sector) as there are not enough data points yet on the two new ones for
me.
There is some overhead resistance on this chart, but it has pulled back to
within only 5.3% of its support line. In addition, its RSI is entering a level
of support. IYE is a great alternative for investors who don’t have enough
exposure to energy. Buying an index is always less risky than buying an
individual stock, but, remember, you will want to have a larger percent of it in
your portfolio in order to generate the same sort of effect as owning an
individual stock in the industry.
Sara Conway is a
registered representative at a well-known national firm. Her duties
involve managing money for affluent individuals on a discretionary basis.
Currently, she manages about $150 million using various tools of technical
analysis. Mrs. Conway is pursuing her Chartered Market Technician (CMT)
designation and is in the final leg of that pursuit. She uses the Point and
Figure Method as the basis for most of her investment and trading decisions, and
invests based on mostly intermediate and long-term trends. Mrs. Conway
graduated magna cum laude from East Carolina University with a BSBA in finance.