Wednesday, January 14, 2015

Oil’s Secret Stabilization

While it might not feel like it and the abounding warning about $20 oil counsel against, there is a bullish candlestick technical pattern that could be developing.  A higher closing level would be required to finish the pattern and even with this, a confirmation with still higher prices would be required to satisfy a conservative position taker.  Still, it is hard to argue oversold conditions. 

RSI (14 day) is below 21, indicating strong oversold conditions.  There have been 11 new lows since December 22 without a three session pause.  Finally, the commodity has fallen by 58% since the Jun 20th $107.73 high to yesterday’s CLH5 of $44.20 low. 

The developing pattern includes a long dark body day with a ‘bozo’ open on Monday followed by a lower open and doji like or ‘bullish hammer’ performance on Tuesday.  Today’s higher open could leave Tuesday’s candle alone to mark a bottom should prices finish higher still.  Any strong performance, say a $2 bullish advance to $48 or so would further mark the formation as impressive. 

Interestingly, open interest has advanced since December 23th at 1.429m to January 12th to 1.582m (153k).  This may be a bit hard to reconcile as many would have assumed that position holders of all sorts would have exited the market for the safety of the sidelines.  While current open interest is nowhere near record (1.93m – Sep ’13), the recovery in open interest from recent lows, even despite continued weak price action, may be saying something about stability in the willingness of participants to stay involved.

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