By Greg Holden – This article is not about what traders are actually expecting to happen, only a theoretical speculation regarding a recent observation. Crude Oil’s weekly chart scares me. Here’s why: Oil is a commodity which trends in relatively stable patterns. Even when the Euro, US Dollar, or Australian Dollar are acting erratically, Crude Oil tends to continue moving in what can be called “smooth” trends. That is, even when it jumps up and down, it remains inside a larger pattern.
An exception to this does exist, however. Whenever a market anticipates heavy growth, like that being forecast in the mid-2000s, this commodity takes off. But the subsequent sharp increase in oil prices has a nasty habit of bringing the market down sharply. High oil prices impact the entire world’s ability to function industrially. The result of the sharp increase in price, like that seen in 2008, was an added pressure on a financial crisis already underway, grinding the possibility for corrective growth to a halt.
For the time being, Crude Oil remains in a steady trend. No reason to panic. The uncertainties rocking Europe, alongside the dropping Asian equities and return of safe-havens, brings to mind the conditions of early 2008 (the big difference being that Europe is the focus instead of the US).
As safe-havens have re-emerged, the likelihood of the US Dollar surging have come to fruition and we see some safety commodities, like Gold and Silver, rising; while oil experiences a steady drop, since it lacks that safety allure. But the moment oil breaks out of its smooth trend it has a historic tendency of becoming erratic (as shown below).
I must re-emphasize, this does not say that traders are anticipating such an occurrence. Only that the possibility exists and we would be wiser to pay attention this time around. If the price of oil continues to fall outside of its current uptrend, there’s a chance it will repeat the movements of 2007-2008… a slim chance, but one that exists nonetheless. This chance also appears to be growing slightly more probable as many are now claiming that an investment in BP would be prudent given the recent situation in the Gulf of Mexico and its impact.
I consider myself an optimist and would hate to see such a turn of events take place, but each passing week brings more news which points to Europe’s despair looming larger and larger. One can’t help but make the comparison with the crash of 2007-2008, and Crude Oil’s concurrent price abnormality, with what’s happening now. Of course, Crude Oil could just be reaching the lower border of its recent trend and promptly bounce back up, as many are expecting, and this article will have been for naught.
Traders, place your bets!
Crude Oil Weekly Chart
Forex Market Analysis provided by Forex Yard.
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