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Clif Droke

Clif Droke

Clif Droke is the editor of the two times weekly Momentum Strategies Report newsletter, published since 1997, which covers U.S. equity markets and various stock…

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Crude Oil in the Short-Term

Since falling from its peak of around $55/barrel in October, crude oil has been in a free fall of sorts, having recent retraced a substantial portion of its earlier 2004 gains. Already there are financial commentators who have written of crude's demise and have concluded that oil prices are destined to tank even further in 2005.

While it is not my intent here to forecast the year ahead in crude oil, I would point out that talk of crude's demise is premature. Note the longer-term monthly oil chart which shows the uptrend channel still intact (from the start of the 2002 bull market advance). Until this uptrend is decisively broken, any talk of oil beginning a new major downtrend is purely speculative.

Like most major commodities, crude oil tends to travel along a series of concentric curves and most notably the parabolic arc. These may take the form of bowls or domes, and at any given time a series of interlocking bowls and domes are present the chart (largely invisible to the naked eye without the aid of drawing tools). The previous advance in the price of crude was guided by a large parabolic bowl, which was broken shortly after the October peak.

Now a new, short-term bowl is evidently being traced out that so far has kept the drop in the oil price from going straight down in rapid fashion. This smaller bowl looks to keep the oil price afloat above the pivotal $38-$40 area in the immediate-term and eventually should allow crude oil to mount another attempt at the $46-$48 area if nothing else.

This latest crude oil parabola converges with the weekly and monthly charts in showing the $38-$40 area to be a strong potential support in the near term. A number of important trend lines and moving averages intersect around this area, so it will definitely merit our close attention in the days ahead. In short, crude oil may be off its highs for the year but it hasn't completely given up the ghost yet and there are signs that lingering momentum from the prevailing longer-term trend are about to come to crude's rescue in providing a short-term lift.

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