The price of oil is freefalling.
After peaking above $63 per barrel earlier this month, the price of the gooey black stuff has fallen nearly 15%. It closed Friday just above $54. And, if it can fall just a bit more, traders should look to buy oil again.
Take a look at this chart…
Analysts are blaming the recent decline on a number of reasons…
Middle East tensions are falling. Oil inventory is building. Fears of a coronavirus epidemic are slowing the global economy.
Remember though, those same analysts were mostly bullish on oil at the start of the year. They argued that increased hostility with Iran would push the price of oil higher. Inventory levels were coming down. And, the new Phase I trade agreement between China and the U.S. would spur economic growth.
As we argued when we advised selling oil into the rally earlier this month, when it comes to trading oil, it’s best to simply buy at support and sell at resistance.
As you can tell from the chart, the price of oil is approaching support. There are two support lines just below the current price. One line connects the June and August lows and suggests oil could be headed towards $51 per barrel.
The other support line is slightly more bullish. It connects a series of higher lows and suggests oil may be nearing a bottom at a price closer to $53.50 per barrel.
Personally, I’m leaning more towards buying oil at the $53.50 support level.
The various technical indicators at the bottom of the chart are already in oversold territory. And analysts’ sentiment – which has proven to be an excellent contrary indicator – has turned quite bearish on this recent decline. So, it seems to me that oil may be nearing at least a short-term bottom.
Traders might consider buying oil on a decline towards $53.50 if it happens early this week.
Best regards and good trading,
Jeff Clark
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