Crude Oil: More to the Story
In our Chart Book, which is a new weekly addition to TheTechnicalTake line up, I highlighted a chart of the i-Path Goldman Sachs Crude ETN (symbol: OIL). The chart pattern was bearish as price was breaking down out of 3 year range and below two key pivot points. This is shown in figure 1, a weekly chart of OIL. But as always there is more to the story.
Figure 1. OIL/ weekly
I suspect that the break down in crude oil is reflective of the fact that the US economy is headed into recession. Economic indicators are pointing towards a recession, and I believe the poor action in crude oil only confirms this. Two fundamental inputs that are crude positive are economic strength and rising yield pressures. Neither of these dynamics are seen in the current economic environment. Crude could be considered a hedge against the lunacy of central bankers to inflate assets and devalue currency, but the Fed is doing more of the same for now, and Europe can’t seem to get its act together.
From a fundamental perspective, there seems to be little reason to to own crude oil. The technical picture is also negative. Look for OIL to drop another 20% and possibly retest the 2009 lows. A weekly close above the 20.38 pivot would invalidate this analysis.
Category: crude oil
Comments (3)
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- Before It's News | June 25, 2012
Isn’t it rather folly to analyze oil based on one of the flawed ETFs rather than the spot price? Especially over a very long term, as in this post.
The picture you get looking at $WTIC is considerably less bearish than with OIL, or USO. And then there’s Brent…
I really fail to understand why you continue to do this with oil, though I respect your work very much.
Onlooker:
Fair enough….the reason I am looking at USO –warts and all– because it is in the portfolios that I construct for clients
That said my models are constructed utilizing WT Crude going back to 1980′s
But it still doesn’t change the story of this economy