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WTI Crude forming a bottoming pattern after three months of heavy losses?

 

WTI Crude topped out in June and hovered around the 107.50 mark for three weeks before collapsing sharply into September. In that 14-week period there were only two weeks which registered gains, which serves to emphasise how quickly prices dropped over $17 from a high of 107.73 down to a low of 90.43. The strength of the US dollar over this same period is most likely to have played a very significant part in the weakness of the oil price. However in the last week the US Dollar Index has come to a grinding halt as we retest last year’s highs at 84.75. In a recent article for Intertrader.com I noted that the 2013 high of 84.75 would play a significant role in this year’s rally and it may be worth reading over that article again now that we have achieved this target.
If the dollar has run out of steam as it may have done temporarily, does this mean a recovery in the oil price is likely? In fact WTI Crude is testing extremely important longer-term support levels which are crucial to future direction this autumn. Let’s examine with a look at the monthly chart below.

The bigger yellow trendline stretches back four-and-a-half years to mid 2010 and you can see how this has held the downside perfectly throughout the whole of September. If you look at the Fibonacci lines which I have drawn from the low in 2012 to the high in 2013 you will see how this trendline coincides with the 61.8% support level at 90.66. On three occasions this month the WTI Crude price has tested these levels with a low at 90.43 on the 11th and a low of 90.63 on the 15th. Yesterday on the 23rd we tested again to bottom out on the day at 90.58. This has so far created a rare triple bottom pattern which is evident on the weekly chart below in the red circle.

You can also see on this close-up how perfectly prices are holding on to that longer term trendline and Fibonacci support. This triple bottom pattern is helping to confirm how this important support area is attracting buying interest and I would imagine a lot of short-covering from technical traders.
The daily chart below is interesting because it shows how each time the support levels were tested in September a very positive candle was formed.


This helps to give yet more confirmation that buyers are very active at these important support levels with very sharp bounces on the three days that we tested the support areas. In my opinion with the formation of a triple bottom yesterday it could now be worth buying into longs with an increased chance of a recovery in the price into the autumn.
A little profit-taking in the US dollar is certainly possible after such a strong rally. The dollar could certainly be seen as a little overstretched in the short term and the fact that we have spent the last week unable to break above last year’s high could certainly trigger a little profit-taking in the coming days and weeks. This is something that oil bulls who are buying in at these important support levels will be hoping for.
 

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