Tech talk: Crude markets

January 14, 2009 09:53 AM

If you like bungee jumping, you will love trading crude futures in 2009. Expect a snap-back in prices, but the bottoming process is likely to last well into the first half of 2009.

The front-month crude contract could trade as low as $24.94 per barrel, which is likely to hold. A test of that level would violate the $32.48 low hit on the January contract on Dec. 19 (“Crude: Technically speaking” has slightly different levels due to the way eSignal calculates continuous data). Should the market make a significant low on less-than-average volume that would be the end of a brutal selloff that began in July 2008.

The broadening formation on the weekly chart is a sign that the market is already in the bottoming process.

The bullish engulfing pattern on the weekly candlestick chart is a sign that the market may want to probe higher levels before retreating once again.

The parabolic is short on every time frame — annual, monthly and weekly — but the stop is so far above the market’s 2008 settlement of $44.30 as to make for high-risk short positions. The weekly parabolic may just come into play once the market has signaled that a bottom is in. The weekly stop is set at $60.71, which looks insurmountable with prices languishing at the $40 level at the start of the new year.

The weekly parabolic will ultimately become the upside objective once this market is able to establish upward momentum. But first the market must break above trendline resistance at $52.22.

Do not get greedy on shorts because the pullback is likely to be short-lived and prices will make another run to the upside. The second leg up will likely see a test of $76.55, which is the 38.2% retracement of the move from the all-time high .

The slow stochastic indicates extremely oversold conditions dropping below seven at the end of the year. Remember to always weight the longer time frames more heavily to avoid getting whipsawed, particularly in markets with high volatility. Those who suffer from acrophobia should not take up bungee jumping as a sport and should sit on the sidelines rather than trade crude oil.

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