Monthly Nearby Crude Oil Chart

Nearby Crude Oil Monthly Analysis for September 2012

Nearby crude oil rallied for the second consecutive month in August, forming a new main bottom at $77.89 in the process. This move gives the appearance of a possible double-bottom when combined with the October 2011 bottom at $78.46. This chart pattern will be confirmed when the March 2012 top at $113.11 is penetrated. 

Before crude oil even reaches this level, it has to deal with another possible short-term resistance area. Based on the range of $113.11 to $77.89, its retracement zone at $95.50 to $99.66 has to be taken out. If the rally fails at this zone then the market should resume its downtrend and possibly challenge the pair of bottoms. 

Monthly Nearby Crude Oil Chart
Monthly Nearby Crude Oil Chart

Further complicating things is the presence of a downtrending Gann angle from the July 2008 top at $194.50. After 50 months since this top, the angle comes in at $94.90. This angle was tested in late August and proved to be solid resistance. When combined with the short-term retracement zone, it forms a major resistance cluster this month. 

On the downside, additional support is at $85.89 and $81.89. These two prices will be the last line of defense before the two bottoms and could prove to be important levels if buyers decide to buy value in an effort to form a secondary higher bottom. 

Fundamentally, nearby crude oil has been supported by a weaker U.S. Dollar and speculation of military action with Iran by either Israel or the U.S. Supply has been high, but traders are banking on improvements in the U.S. economy to increase demand. Additionally, demand for higher yielding assets has helped underpin the market, but this is only likely to continue if the Federal Reserve comes through with additional quantitative easing. 

The major concern for crude oil traders is the possibility of a global economic slowdown. Weakness in the Euro Zone is holding back the U.S.economy and having a devastating effect on the Chinese economy. Poor manufacturing numbers in both countries is a sign of declining demand. This will mean that less oil will be needed, driving up inventory and keeping a lid on prices. 

Pressure could be on crude oil throughout the month if the U.S., Europe andChinadon’t begin to show signs of improvement. This assessment is being confirmed by the monthly chart pattern which is showing a downtrend and a test of resistance. It is nearly impossible to turn the main trend to up this month, but resistance could be eroded slowly, leading to the possibility of an upside breakout later in the year. The Fed’s and the ECB’s decisions to stimulate or not stimulate their respective economies should be the market moving news this month. Additional stimulus should be bullish for crude oil. 

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James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.

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