The Forex Chronicles

Possible Breakout on US Crude Oil – December 2018

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Recent Price Action

The price of US crude oil has been trading in quite a narrow sideways trading range in recent times, and seems to have stabilized between $50 and $55 with no clear direction.

However if you draw some trendlines on the daily chart of this particular commodity, you can see that the range is getting smaller all the time, and therefore a breakout is becoming increasingly likely:

US Crude Oil Daily Chart - December 2018

Downward Breakout?

At the time of writing this article, the price has actually dipped below the lower trendline ever so slightly, hinting at a possible breakout, however it is still too early to call.

That’s because you really need to wait for the price to close decisively outside of an established trading range before trading breakouts.

So in this instance we will need to wait until the candle closes at the end of the trading session before seeing if this is an actual breakout or not.

I think it is fair to say that most traders are actually expecting the price of crude oil to bounce back rather than break lower because 89% of traders have long positions on eToro, and 87% of traders have long positions on IG Index, for example.

Therefore it will be interesting to see what happens in the coming hours and days.

Possible Price Targets

If the price does indeed break decisively below the lower trendline, then it could easily fall below $50 to around $48, and possibly as low as $45, although it is very hard to set any price targets with any real accuracy right now.

The fact that we are entering a quiet period of the year for the markets, ie Christmas and New Year, means that volumes are a lot lower, and as a result of this, price moves are harder to forecast because any price swings that occur can either be exaggerated or thwarted by low volumes.

I personally would be a lot more confident about trading an upward breakout because the price has already fallen quite substantially since the start of October. Therefore I would look for the price to close around the $53 level or higher before considering opening a long position, as so many traders are predicting.

However these are just my own thoughts and opinions. This in no way represents financial or trading advice of any kind.

I just thought I would alert you to a possible breakout that could be about to take place on US crude oil as we head into Christmas.

Crude Oil Analysis For November 2018 – Is This The Bottom?

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Price Falls in October

The price of crude oil has fallen quite sharply in recent weeks after posting new highs at the start of October.

After posting a high of $86.65, the price of Brent crude is now trading at $72.83 per barrel at the time of writing, while the price of US crude oil has fallen from a high of $76.81 to $63.10.

Subsequently the price has actually broken below the all-important 200-day exponential moving average, which isn’t necessarily a sign of further weakness by itself because we haven’t yet a death cross, where the EMA (50) crosses below the EMA (200). However it does show just how much the price has fallen from its highs.

The question is, how much lower can the price of oil go, and have we reached the bottom?

Future Price Prediction

I personally think that we are now very close to the bottom because some of my favorite technical indicators are suggesting that the downward price trend is running out of momentum.

For example, this is the chart that I am currently looking at for US Crude:

US Crude Oil Chart - November 2018

It might be a little hard to see on your computer screen or phone, but the MACD histogram bars are showing signs of divergence (failing to post new lows as the price hits new lows), and two of the most effective oversold and oversold indicators, ie the RSI and stochastics indicators, are both below the oversold levels of 30 and 20 respectively and look as if they are starting to turn upwards.

As a result of this, I would expect the price to move back to the 200-day moving averages on both Brent and US crude, which would give price targets of $74.71 and $67.28 respectively.

However these are just my own thoughts and opinions, and I am not recommending any trades or offering professional advice in any way.

I am not planning to go long on either market, but the fact that both of these commodities are starting to look oversold has made me look again at companies such as BP and Shell, whose prices have fallen along with the price of oil, particularly with both companies going ex-dividend this month.

US Crude Oil Closes Below EMA (200)

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Crude Oil Price Trend in 2018

If you have been following the price of US crude oil, you will have noticed that the price has been in a slight upward trend so far in 2018, going from around $60 per barrel at the start of the year to a peak of just over $74 per barrel at the start of July.

The price of Brent Crude has also been in a similar upward trend, rising from $67 to a peak of just over $80.

As a result of this, many of the large-cap oil stocks have seen their share price rise dramatically during this time.

Downward Trend in Summer

Since the price of crude oil peaked, it has since started to trend lower because we have seen a series of lower lows and lower highs.

This is relatively normal during the hot summer months because there is not the same demand, but from a trading perspective, it is interesting to look at the price chart to see if this is a temporary drawback, or the start of a more significant downward trend.

Price is Now Below EMA (200)

US Crude Oil Chart - August 2018

One key development is that the price of US Crude has just fallen below the 200-day exponential moving average (EMA (200)) on the long-term daily chart for the first time since September 2017, as shown in the chart above.

This is significant because this is a major indicator of the long-term trend, and is an indicator that is viewed with interest and acted upon by many traders.

So if the price continues to fall and establishes itself below this EMA (200) indicator, it could well be an opportunity to go short if there is a strong downward breakout.

Key Indicators of a Change in Trend

It is far too early to say for certain that US Crude is now in a bearish trend, and therefore likely to fall a lot further, just because it has closed below the EMA (200).

What we really need to see is a downward EMA crossover, where the EMA (20), EMA (50) and ultimately the EMA (100), all cross downwards through the EMA (200) because this will give a much stronger signal that a new bearish trend is emerging, and it is time to start looking for opportunities to open short positions.

It is also worth paying attention to the price of Brent Crude as well because if you look at this price chart, you will see that the price hasn’t yet closed below the EMA (200), but is very close to doing so.

Therefore if we do see downward EMA crossovers on both of these charts, this would suggest that the price of crude oil generally is entering a period of weakness, and is highly likely to continue falling.

Closing Comments

Even if we do see downward EMA crossovers, I still think it is highly unlikely that we will retest some of the previous lows of 2016, when the price of crude oil hit really did hit rock bottom, but I think a move towards $55 and possibly even $50 is certainly possible.

Either way, it will be interesting to see how the price reacts around these key levels because the EMA (200) is such a significant indicator in the world of trading.

We may find that this indicator acts as support and the price will eventually resume its upward trend, or at least stabilize between $65 and $70, but if we see further price falls, a big downward price move is definitely possible.