Thursday, September 16, 2010

Bloomberg Technical Analysis: Crude Oil Futures Stall at $84

Crude oil prices may not rise above $84 a barrel because increases lose momentum around that level, according to technical charts used by traders. A resistance channel has formed between $82 and $84 a barrel for oil traded in New York based on patterns in a point and figure chart, said analysts at the Villanova, Pennsylvania based Schork Group Inc. Crude reached this range five times in the last 18 months and failed to go higher. When prices did breach this level earlier this year, peaking at an intraday high of $87.15 a barrel on May 3, a collapse followed to $64.24 on May 20.

“A channel of significant resistance forms between $82 and $84 -- prices failed at this point in October 2009, in January 2010, twice in March and again in August,” Schork Group President Stephen Schork wrote in a Sept. 14 report. “The lone breakout, taking place between April and May, led to the sharpest sell-off seen all year and annual lows. Thus we consider this level key.” A point and figure chart gauges trends in prices without showing time or volume. Rising patterns are indicated by an X while falling prices are shown by an O. Movements are measured by a pre-defined unit called a reversal. The default for this unit on the Bloomberg terminal is a $3 a barrel change.

Months of the year are indicated on the point and figure chart by numbers, with the exception of October to December, which are shown by the letters A to C. For example, trends from September are shown as a 9 and for October by an A. The point and figure chart shows that prices are in a rising trend since bottoming out in May. Crude climbed from there reaching an intraday peak of $82.97 a barrel on Aug. 4. The system first appeared in an 1898 book called “The Game in Wall Street and How to Play It Successfully,” according to the Schork Group.

From Bloomberg Energy

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