As expected Crude Oil is attempting to make a bottom after the recent sharp decline, but the quality of the bottom making process is poor, which suggests that an ensuing rally will also be poor.

Technical Analysis
1. Price Patterns & Support - The decline was strong off the 80 high, which suggests that the next up trend is likely to be weak. The key support is $56, which crude is clearly attempting to hold as a bottom.
2. MACD - (Bottom indicator) - The MACD become oversold and has made a base which is supporting current prices, although the actual price trend has proved weak.
3. 50 Day Moving Average - Is current at 66 and falling towards the 64 resistance area, which suggests a timing for a break higher could be a week or more away.
4. Trend lines - Crude all is some distance from the support trendline which mow acts as resistance at $70.
5. Time - The decline in crude time wise is one of the largest during the bull market and suggests that a retest of the high is not likely in the near future.

Conclusion - Crude Oil, is attempting to make a base above $56 for a rally towards $70. This could still take some time to form and is contingent on break of $64. The crude bull market is not looking so good given the poor quality of action between $56 and $64, as the MACD is calling for a rally, but crude is just moving sideways. Therefore buying crude at current levels for a rally to $70, carries more risk than last analysed on 10th October 06.

Buy Trigger - A break of $64.20
Target - $70 resistance area.
Stop-Loss - 50% of the high low range $64 to $57 or lower = $60.50.

Nadeem Walayat

(c) MarketOracle.co.uk 2005-2006

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