Monday, August 17, 2015

Oil Bubbles After Nine New Lows

One way I measure the potential level of trend over-extension is the number of sessions where new lows (highs) are achieved without a three session pause.  Generally, seven sessions of new lows (highs) is required before the movement attracts my attention.  Ten, twelve and longer period trend extensions are more rare and usually represent greater overdone trends. 

Crude oil experienced a ninth new daily session lows without a three session pause on Friday.  Today, I am watching price action more closely as oil is now at levels not seen since Early 2009.  

A downward sloping trend line on the 30 min chart was bested on strong volume moments ago.  This short term pattern follows a bullish ‘hammer’ formation from Friday’s daily session chart.  Repair may be slow in developing, but there are signs recently that the downward pressure in oil may not be as strong as some fear. 

The last time I wrote about Crude oil was on May 7th (‘Crude Possibly Signaling an Important Top’) and May 13th, (‘Oil At Critical Juncture Testing Resistance’) was when Crude was trading at the recent $62.58 high.  Candlestick analysis as well as positioning conditions gave a very loud and worthwhile warning for forthcoming weaker price action I am glad we heeded. 

Developments today are still shaping.  There may be additional new lows, though we will be watchful today for a recovery above $42.50 on settlement.  If this happens, Crude will have formed a bullish engulfing and upon confirmation, will provide strong support for recovering prices.   

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