Critical Test Ahead for Crude Oil

By: Clif Droke | Sun, Jan 16, 2005
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Since last writing on the crude oil market in the short-term, the price of oil has risen to our previously forecast upside target $48 area. This was underscored by the parabolic bowl shown in the previous report (entitled "Crude Oil in the Short-Term"). The bowl did an admirable job of shepherding the oil price to its current high level.

As discussed last time, crude oil tends to travel along a series of concentric curves and most notably the parabolic arc. These may take the form of bowls or domes, and at any given time a series of interlocking bowls and domes are present the chart (largely invisible to the naked eye without the aid of drawing tools). The previous advance in the price of crude was guided by a large parabolic bowl, which was broken shortly after the October peak.

The short-term bowl we looked at in late December kept the autumn decline in the oil price from going straight down in rapid fashion. This smaller bowl still looks to keep the oil price afloat above the pivotal$40 area in the short-term; however, I believe we could witness a critical test of this bowl near the $40 area in the weeks immediately ahead.

Notice that the latest crude oil rally is about to hit potentially strong resistance at an upper trend channel boundary. This channel boundary also happens to converge with a rather large parabolic dome in the daily chart stretching back to July (and peaking in October with the price high in crude). This parabolic dome is still the dominant feature for the crude price right now and until it becomes exhausted it still must be respected. Based on the dynamics of this chart, a decline back down to re-test the recent lows at the $40-$42 area appears likely.


 

Clif Droke

Author: Clif Droke

Clif Droke
ClifDroke.com

Clif Droke is a recognized authority on moving averages and internal momentum. He is the editor of the Momentum Strategies Report newsletter, published since 1997. He has also authored numerous books covering the fields of economics and financial market analysis. His latest book is Mastering Moving Averages. For more information visit www.clifdroke.com

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