Update on Oil: Mar 17, 2015

Crude light (CL) is about to tag our 42.51 target — completing a Bat Pattern at the 88.6% retracement of the rise from 33.20 in Jan 2009 to the peak of 114.83 in May 2011.  We’re looking for a significant bounce.

2015-03-17-CL wkly 523amClose-up on the 60-min chart:

2015-03-17-CL 60 450amIn our last dedicated update [see: Jan 6 Update] we noted the trend line connecting the Dec 12, 1998 and Jan 15, 2009 lows:

We discussed the bleak channel and TL standpoint.  From a price Fibonacci standpoint, the next major support is another 13% lower — the white .886 at 41.49 [note: now 42.51 due to price adjustments for contract changes.]

Since CL broke through the trend line a few days ago, we have been expecting this drop.  Also as expected, it occurred during the after-hours (lighter color in the chart below), so as not to upset equity markets which are much more easily propped up in light volume.

2015-03-17-CL 60 523am As we discussed about a week ago [see: Those Wacky Central Bankers,] oil’s massive price decline is both a reflection of and perfectly suits the US’ needs:

– strong dollar
– low inflation
– low interest rates
– continuation of the yen carry trade
– penalties for our “enemies”

In fact, oil’s decline was quite possibly the only major economic event which could have satisfied all of those critical needs — leading me to believe it was a deliberate take-down.

From a chart pattern standpoint, failure of a 17-year trend line is a big deal.  But, so is completion of a Bat Pattern.

2015-03-17-CL wkly ES divergSo, it’s going to be very interesting to see whether oil will rebound here as it normally would for technical reasons or continue to fall (or, at least flatline) because that’s the corner into which central banks have painted us.

My gut tells me we’ll get a decent bounce that boosts stocks and allows USDJPY to reset (or, at least backtests the .618 at 120.11.)  A bounce much beyond a backtest of its long-term trend line is more difficult to imagine — as it would unravel most of the benefits of the decline.

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