The Price Of Oil: An Analysis Of Support And Resistance

If you’d shorted crude oil in early to mid-2014 and somehow you’d held onto the position, right now you would be sitting on some hefty profits. Back then the stuff went for about 105 a barrel and this week’s closing price is about 34.

Big gains if you’d simply ignored the trade from then until now. Only a tiny percentage are able to nail it like that, but you could have been off the high by a decent amount and still have done well.

Or let’s say you’d had the smarts to short it at the 2018 peak up near 75 and you held it until the present. That would have been sweet. Or maybe you’d waited until December of last year or early January of this year and shorted it up near 62. Not quite a double, but a decent trade.

Since media reports are now surfacing with the “wow, look how much oil has recovered!” it’s important to put the whole thing in context. Here are the key, annotated price charts so investors can judge for themselves what’s up with crude.

Crude oil’s daily price chart using the benchmark “continuous contract:”

That’s quite a bounce off of the late April lows but given the extent of the suddenness and ferocity of that unusually intense sell-off, it’s not all that surprising to see this kind of buying interest re-emerge on the other side.

Look how the moving average convergence/divergence indicator (below the price chart) called it with the positive divergence between the March and April dips. The relative strength indicator (above the price chart) confirms the MACD with a similar pattern.

Note that the big Friday-close to Monday-open “gap down” in early March has yet to be filled. The crude price is right up against the lower part of that range as it seems poised to rise above the down-trending Ichimoku cloud. It’s probably a good guess that this 35 to 40 level will be significant resistance. That’s where sellers stepped up in big numbers last time around.

Crude’s weekly price chart:

The favorite commodity of Russia and of Saudi Arabia has been declining in price steadily since at least that 2018 peak. The March selling took out the previous support level at 42.50 from late 2018.

Crude remains below the Ichimoku cloud which continues to trend downward. With the buying coming back in after the April dump, you can see that the MACD below the chart shows momentum turning from negative to positive.

Crude oil’s monthly price chart:

The red dotted line connecting the 2008 peak with the highs of 2013 and 2014 shows how demand for oil has significantly dropped. The price has risen back above the early 2016 low — after dumping way below it last month. Can it stay above it? And make it all the way back to the down trend line?

The Energy Select Sector SPDR Fund contains the big oil stocks and the weekly price chart looks like this:

The energy stocks generally reflect the price of oil, but if you examine closely you can see a few differences here. For example, the March gap down on this chart has been mostly filled. Note as well that these stocks bottomed in March and managed to stay above that level when oil itself crashed in April.

With a pandemic still in effect and a Presidential election coming up, uncertainty will be a feature of this market for months.

 I do not hold positions in these investments. No recommendations are made one way or the other.  If you’re an investor, you’d want to look much deeper into each of these situations. You can lose money trading or investing in stocks and other instruments. Always do your own independent research, due diligence and seek professional advice from a licensed investment advisor.