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.
At the request of one our more astute readers who posted some comments in the above article, here is a weekly chart of West Texas Intermediate crude oil. See figure 2.
Figure 2. WTI/ weekly
The story -economic contraction - remains the same as crude oil is breaking down. A weekly close above 80.94 would invalidate this analysis. Otherwise, I would expect crude oil to reach the next support level near $70.