What next for oil?
My work signaled that spot Brent crude oil was bottoming in early July at $78 a barrel, as reported in the July 8 Institutional View. Once Brent crude hurdled $81 on a weekly close, its advance accelerated. But as it approached my upside $100 target, oil and energy stocks began to stall.
When it reached $97.50, upside momentum peaked—just as oil entered a strong resistance area. And when we looked under the hood, the energy stock indexes were exhibiting weakness. They were repelled at resistance as their volume flows broke uptrends. For that reason, I downgraded oil to Neutral at $94 in my Sept. 19 report.
So what’s next for the commodity? My work suggests that, price-wise, oil has minimal downside risk. There is considerable price and 200-day moving average support in the $80-$82 area. Just as oil approaches price support, momentum has reached its most oversold level since May, when oil was $72. But since weekly momentum is neutral as oil nears price support, the biggest risk is that oil trades within a narrow range for an extended period—rather than declining significantly in price from here.
While my work projects a low developing between $80-$82, I advise waiting before adding or initiating new positions until another bottom is confirmed.
Andrew Addison is the author of The Institutional View, a research service that focuses on technical analysis.
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