Technical Analysis of Oil
The initial reaction we saw in the price of oil after the unrest in some oil-producing countries of North Africa and the Middle East seems to have faded a bit now. The market hit a high of 126.88 on the 8th of April and since then it has first dropped significantly and then started to move sideways.
Summer has also arrived in the Northern Hemisphere, easing demand for oil and further alleviating pressure on the price.
Having said that, things are still volatile and any threat to supply will no doubt result in further upward pressure on the price.
The rebuilding process in Japan following the recent disaster in that country, along with continued strong growth in China and other countries in the Far East, will keep demand strong for the foreseeable future.
The Technical Picture
If we look at Fig. 5.30 we can see clearly that the strong bull market that reigned since the last quarter of 2010 has apparently lost momentum.
The price is currently in the Ichimoku cloud, which is an area of uncertainty where traders are advised to stay out of the market until clear signals emerge.
The green Chinkou Span line is below the price of 26 periods ago, further strengthening our view that the bull market has come to an end, at least for now. The red Tenkan Sen line is also below the blue Kijun Sen, showing that at least in the short term the bears are reigning.
Going long on oil for a medium-term trade can only be recommended once the price breaks upwards out of the Ichimoku cloud again.
If the price breaks out of the cloud in a downward direction and drops below the recent brief low of 105.15, we could actually see the start of a medium-term bear market, in which case going short will be a reasonable option.