The big question on everyone’s mind right now is: where will oil land? The chart above shows us a number of support and resistance points based on patterns since 2008. I’ve drawn blue lines for potential support levels, and green lines for technical resistance levels. Oil’s current downside projections may come in at one of the blue-line points. Resistance – sell targets may land at one of the green lines. Note that I suggested the resistance lines are sell points. Energy is not the screaming deal that some might have you believe. The uptrend that had been in place since 2009 has been broken. Please consider energy as a trade, not a hold. Further, if you own energy stocks, use any rally to the above noted resistance point as an exit strategy.
Downside: $65, $57
Upside: $70, $80, $85
When will a rally happen? As I write this, there is an attempt by traders to play a bounce – WTI oil is up on the day by over $1/barrel. If the bounce lasts a few days (see my “3 bar rule in the book Sideways), we may see a continued movement up to one of my resistance points. It’s too early to make a bold call at this point. I can say, however, that oil is massively, massively oversold. It wouldn’t surprise me to see Friday as a capitulation (temporary) bottom point. I’ll become bolder about that call should this rally last the balance of the week. The daily chart below is not showing any material change in the momentum oscillators that I use to confirm a bottom.
Beyond a bounce – can oil turn around and enter into a bull trend? Sure! At this stage, that potential doesn’t seem likely—but that might change in the future. As technical analysts, we are allowed to change our trade when the tides change. If WTI oil moves above $85 (top resistance line on chart) I would consider a longer termed hold on the commodity or stocks influenced by it. Until then—energy is on my “naughty, not nice” list for Christmas.