Technical Analysis of Oil
Various fundamental factors, including the worldwide economic downturn and predictions of worse to come will certainly exercise a downward pull on the price of Brent during the next few weeks. On the other hand, in the Northern Hemisphere, winter is setting in and China’s economy is still growing strongly, which will tend to stimulate demand for oil and push the price upwards.
If we look at Fig. 11.21(a) – a chart of the price of Brent since June 2011, we can clearly see a downtrend emerging over the longer term. There were several mini up and downswings, each lasting about three weeks, but the trend lines clearly show falling tops and bottoms.
Since the beginning of October 2011, however, there seems to have been a reversal in this longer-term trend. We are seeing rising tops and rising bottoms, which could indicate that the bear market is over.
If we adhere strictly to the Ichimoku Kinko Hyo, however, we are still in the grips of a bear phase at present. The price is below the Ichimoku cloud, the current price is way below that of 26 periods ago and the red Tenkan Sen and blue Kijun Sen are both below the Ichimoku cloud.
A short trade is not advised right now, since the price is approaching the recent low of 106.09 it reached on 1st November. Any close below that, however, could see the start of new lows.
Traders looking for a long position will have to wait for a close above the Ichimoku cloud. Once we reach that level, the price might well be heading to a new high above the level of 116.41 we saw on 8th November.