Crude Oil Support

Two weeks ago we suggested the oil price was at a balance point. There were fears that the consolidation pattern support band near $110 to $113 on the NYMEX (New York Mercantile Exchange) Crude Oil weekly chart would develop a new uptrend. The failure of this consolidation band is bearish for the oil price. The next support level is near $100.

The consolidation band between $110 and $113 is a technical consolidation band. It is created by calculating the potential resistance target when price moved above $100. Price reached this level in 2007 March and then retreated. This was the normal pattern of the oil trend in 2007. The price did develop a small consolidation between $110 and $113 before moving strongly towards the next technical chart target near $125. The weekly oil chart confirms the support band between $110 and $113 is weak.

The top of the very strong consolidation area is located near $100. The bottom of this very strong consolidation band is located near $87. This is the next support target area. The $100 level is an important psychological level. However a fall to this level indicates a significant change in the up trend and confirms the development of a new strong downtrend.

The fall below $110 shows developing trend weakness. This is confirmed with the Guppy Multiple Moving Average relationships. The long term GMMA is turning down and beginning to compress. This indicates developing downtrend pressure. This is an important development in the last 2 weeks. Confirmation of the strength of this downtrend pressure is shown when the oil price closes below the lower value of the long term GMMA near $105.

The confirmation of a substantial downtrend starts with a fall below $105. This increases the probability the price will fall to support near $100. The fall to $100 would signal the end of the strong uptrend in oil that started in 2007, January. This is important for oil, but it is also important for the behaviour of the American dollar. The behaviour of the oil price has a direct influence on the strength, or weakness, of the US dollar.

There is now a higher probability the long term downtrend pressure will continue with a move towards $100. In the next several weeks, traders will watch for consolidation developments near $100.

Although price has a high probability of pausing near $100 there is also a strong probability that price can fall below $100. When price reaches $100 it shows the downtrend pressure is very strong. A fall below $100 has a support level near $87.00. There is a high probability in the long term that oil will consolidate between $87 and $100.

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Article contributed by Private Trader, Market Expert, Trading Coach and Best-Selling Author Mr. Daryl Guppy. For more articles and commentaries from Daryl Guppy, click HERE