By Russell Glaser – The price of spot crude oil fell sharply today but managed to climb back following better than expected weekly inventory data from the U.S. government. Another bullish indicator hints to an end of the short term correction and a potential price appreciation in the near term.
Spot crude oil prices traded as low as $74.18 today as the drop in prices that began in yesterday’s New York trading session continued into today’s trading. Broad based selling was seen following yesterday’s negative report from the American Petroleum Institute (API). The API stated crude oil stockpiles rose more than expected. This sent spot crude oil prices tumbling into today’s trading.
Spot crude oil prices finished the day near the $75.55 level after opening the day at $76.02.
The falling prices continued until today’s release of the U.S. Department of Energy Administration weekly crude oil inventories report showed a smaller than expected decline in crude oil stocks. U.S. crude oil inventories declined by only 0.8M barrels while economists had forecasted a decline of 1.1M barrels.
The contrast in the two data releases may have contributed to the increased volatility in the price of spot crude oil. Spot crude oil traded in a range today of $1.92. The Average True Range (14) for the commodity is only $1.58.
Despite the high price volatility, the bullish trend looks to be intact as spot crude oil prices rallied on today’s positive inventory data. As the price came back from its lows today, a hammer candlestick pattern has formed. This may signal an end to the recent bearish correction.
Technical indicators show the price may be in line for further gains. The bearish correction failed to close below the short term rising trend line, signaling the bullish uptrend is still valid and the failed breach only serves to reinforce the importance of this trend line.
A buy signal is also shown on the daily chart. The Slow Stochastic oscillator displays a bullish cross, indicating the next move of the price may be to the upside. The last time a bullish cross appeared on the stochastic, the price of spot crude oil rose to close above the significant resistance level of $80.
Resistance for spot crude oil trading is found at $78 (R1), followed by 79.90 (R2), and the August high at $83. However, support should be adjusted lower to today’s low at $74.18 (S1), just below the rising trend line. Should the price close below this support level, it would signal a shift in the trend to the downside.
Forex Market Analysis provided by ForexYard.
© 2006 by FxYard Ltd
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