CHARTING OIL: Nymex Crude May Bounce From Trendline

Wednesday February 15, 10:43 AM


By Andrew Torchia
A Dow Jones Newswires Column

SINGAPORE (Dow Jones)--Crude oil has plunged nearly 14% in the last couple of weeks as bearish fundamental factors - mainly the approach of a period of low seasonal demand in the northern hemisphere - have outweighed geopolitical tensions. But technical analysis says oil is likely to rebound soon.


Down at $59.40 in Asian trade on Wednesday morning, Nymex March crude oil futures last night broke below important support at $60.87, the 61.8% retracement of the rise from the November low.

But futures are now close to major support on their uptrend line from December 2004, at $59.00 and rising about 6.5 cents per day. This trendline is very strong and well-defined, having been tested half a dozen times in the last 14 months.

So it would be surprising if the trendline broke quickly - especially since 14-day RSI shows crude at its most oversold since end-2004. This implies a good chance of at least a short-term rebound.

There's immediate, minor underlying resistance at $60.00, but the rebound could easily take crude to the $63.00 area (the 38.2% retracement of the fall from the January peak) in coming days. There are no major resistances before that area.

If trendline support breaks, it will be very bearish, targeting the November low of $55.72 in subsequent days or weeks. But while the trendline holds, risk will be weighted to the upside; at some point the market will decide it's factored in the fundamentals, and technical analysis says the trendline is a logical place for this to happen.

In any case, crude will stay long-term bullish while it holds its uptrend line from September 2003, which now comes in at $52.75.