Tuesday, November 16, 2010
Bloomberg Analysis: Crude Oil May Plunge as Prices Diverge From Strength Index
“This suggests a loss of upside momentum,” London based analyst Karen Anne Jones said in an interview. Oil, which traded for $83.47 at 14:19 p.m. London time, earlier today broke a trend line that has supported prices since September at $83.88, and is set to plummet, Jones said. The 14 day RSI was at 50.8.
“The market is sitting today on the two month uptrend, and this is now exposed,” she said. “Failure looks likely and will spell a deeper retracement.” Once crude drops below $83.88 it will be drawn toward a range of $78.50 to $79.31 within three weeks, according to Commerzbank. This price band combines a threshold from the Fibonacci sequence of numbers, with the convergence point of two moving averages.
A move to the $78.50-$79.31 area would complete a 38.2 percent reversal of oil’s advance since May, Jones said. The significance of a 38.2 percent movement derives from the Fibonacci sequence, used by traders to predict points of resistance and support as markets repeat earlier moves. This region is also where crude’s 100 day and 200 day averages cross. The 100 day and 200 day rolling mean are both at $78.57 a barrel.
Bloomberg reporter Grant Smith can be contacted at firstname.lastname@example.org