Tweet
Hello All,
I haven't got access to oil chart can anyone here confirm the price targets in the article from a well respected Australian technical analyst. Also, can I get a someone to forward the Nymex crude oil chart
thanks, Ainsley
------------------------------------------
Catherine Davey
Crude oil going to $50, $55, even $70 - the charts say it could be so. By Catherine Davey, 14 May 2004
This week oil traded contentedly above the key resistance level of $40. What do the charts say? How much higher can crude oil rally? What are the other immediate implications of a high oil price?
Background on Rising Oil Prices
Oil at current levels is not much surprise to any trader with a basic understanding of technical analysis. The charts have been showing a bullish story for oil well before the US invaded Iraq last year. If you check my archive you'll find the reasons why this rally has strong foundation and all the hallmarks of a long-term bull market (posted December 2003). But now that oil is at the magic level of $40, not many analysts are willing to predict how high it can go. This is because no one quite believes it's got to this level without a shock such as the first gulf war or the Yom Kippur War of 1973 when the price quadrupled. Instead there has been a steady uptrend, well retraced and not the kind of bubble price action that implies the price will retreat any time soon. Oil has crept up on us and because it hasn't been a 'shock', fear is muted. In fact I have heard more than one commentator declare oil at current prices benign when adjusted for inflation. But with similar inflation rates in late 2000, the world came very close to a recession when oil reached danger levels above $35.
Fibonacci Targets
From a purely technical point of view, the potential upside is significant. There are a couple of ways to give a target. The first I have used is based on Fibonacci. If we take the lows of 2001 at $16.70 and measure up to the highs of February last year at $39.99 I get a distance of $23.29. This distance multiplied by 0.618 and added to the highs give a target around $54-55. Another Fibonacci target can be found by taking the $39.99 highs down to the May 2003 lows at $25.04 and multiplying by 1.618 and adding to that low. That gives an upside target at the low $49 mark.
Retracement Targets
Using the distance retraced before the recent break of $40 and adding to the breakout point gives a very simple target for crude. It would be calculated as $39.99 - $25.04 = $14.95. Add this to $39.99 and the target is just under $55. This happens to coincide with the Fibonacci target. The more reasons a market has to reverse at a certain level, the better the chance the price will be drawn to that level. However there is also a much more frightening and probably inconceivable target for oil based on the fact that oil confirms a long term double bottom pattern if it closes above $41.15. (This price is based on the spot future continuous price and has already happened on the physical brent crude price). This pattern is visible on the monthly chart below and gives a target just under $72. This sounds crazy but who am I to argue with the charts. If oil is eventually priced in euros and the US dollar sinks, then this doesn't seem such an outrageous possibility.
Stockmarket Victims of a High Oil Price
Flight Centre (FLT) is looking potentially very sick. It is on the verge of a ledge that has been forming since 2000. The magnitude of this topping pattern shows a massive downside potential that might see this stock eventually trade in the $5 range. For a full story on FLT check the daily story in my archive. Another sick puppy, also the likely by-product of a high oil price is Qantas (QAN). The stock has been forming higher waves for the last year. That steady progress will end if QAN closes below $3.26. That gives QAN a target back at the May 2003 lows of $2.84. But if that level is breached then it could retest the 2001 lows of $2.36.
Conclusion
The effect of a high oil price is not limited to airlines and travel companies. Oil is the lifeblood of the world economy. That's why a high oil price is associated with recession. In the past it takes around six months for a high oil price to translate into a recession. Stay tuned for the domino effect of high oil prices.
I haven't got access to oil chart can anyone here confirm the price targets in the article from a well respected Australian technical analyst. Also, can I get a someone to forward the Nymex crude oil chart
thanks, Ainsley
------------------------------------------
Catherine Davey
Crude oil going to $50, $55, even $70 - the charts say it could be so. By Catherine Davey, 14 May 2004
This week oil traded contentedly above the key resistance level of $40. What do the charts say? How much higher can crude oil rally? What are the other immediate implications of a high oil price?
Background on Rising Oil Prices
Oil at current levels is not much surprise to any trader with a basic understanding of technical analysis. The charts have been showing a bullish story for oil well before the US invaded Iraq last year. If you check my archive you'll find the reasons why this rally has strong foundation and all the hallmarks of a long-term bull market (posted December 2003). But now that oil is at the magic level of $40, not many analysts are willing to predict how high it can go. This is because no one quite believes it's got to this level without a shock such as the first gulf war or the Yom Kippur War of 1973 when the price quadrupled. Instead there has been a steady uptrend, well retraced and not the kind of bubble price action that implies the price will retreat any time soon. Oil has crept up on us and because it hasn't been a 'shock', fear is muted. In fact I have heard more than one commentator declare oil at current prices benign when adjusted for inflation. But with similar inflation rates in late 2000, the world came very close to a recession when oil reached danger levels above $35.
Fibonacci Targets
From a purely technical point of view, the potential upside is significant. There are a couple of ways to give a target. The first I have used is based on Fibonacci. If we take the lows of 2001 at $16.70 and measure up to the highs of February last year at $39.99 I get a distance of $23.29. This distance multiplied by 0.618 and added to the highs give a target around $54-55. Another Fibonacci target can be found by taking the $39.99 highs down to the May 2003 lows at $25.04 and multiplying by 1.618 and adding to that low. That gives an upside target at the low $49 mark.
Retracement Targets
Using the distance retraced before the recent break of $40 and adding to the breakout point gives a very simple target for crude. It would be calculated as $39.99 - $25.04 = $14.95. Add this to $39.99 and the target is just under $55. This happens to coincide with the Fibonacci target. The more reasons a market has to reverse at a certain level, the better the chance the price will be drawn to that level. However there is also a much more frightening and probably inconceivable target for oil based on the fact that oil confirms a long term double bottom pattern if it closes above $41.15. (This price is based on the spot future continuous price and has already happened on the physical brent crude price). This pattern is visible on the monthly chart below and gives a target just under $72. This sounds crazy but who am I to argue with the charts. If oil is eventually priced in euros and the US dollar sinks, then this doesn't seem such an outrageous possibility.
Stockmarket Victims of a High Oil Price
Flight Centre (FLT) is looking potentially very sick. It is on the verge of a ledge that has been forming since 2000. The magnitude of this topping pattern shows a massive downside potential that might see this stock eventually trade in the $5 range. For a full story on FLT check the daily story in my archive. Another sick puppy, also the likely by-product of a high oil price is Qantas (QAN). The stock has been forming higher waves for the last year. That steady progress will end if QAN closes below $3.26. That gives QAN a target back at the May 2003 lows of $2.84. But if that level is breached then it could retest the 2001 lows of $2.36.
Conclusion
The effect of a high oil price is not limited to airlines and travel companies. Oil is the lifeblood of the world economy. That's why a high oil price is associated with recession. In the past it takes around six months for a high oil price to translate into a recession. Stay tuned for the domino effect of high oil prices.
Comment