Today oil seemed to, again, be the headline suspect preventing markets from resuming a Fed-fueled destiny with never ending record highs. But what exactly is going on with oil? Will it go lower?
A lot of experts say yes but those people are just chiming in after hearing someone they assume knows what they are talking about repeat it from someone they assume smarter than themselves. After all, how hard is it to say a falling markets will go down and rising markets will go up? You only have to be right once.
Instead of trying to figure out the future price of oil with global supply vs demand or OPEC production quotas and the Saudi welfare state, let's look at the technical argument for lower oil.
We can see from the above monthly chart how oil price, after returning to the origin of its May 2004 breakout (green arrow) in December 2008, failed to make a new high, topping out at $114 a barrel in April 2011, only to start selling off in July 2014 after a three year consolidation period.
Unable to place above $140 after a retracement to origin of its May 2004 breakout, the technicals were determinate that oil's record run had come to an end. This is what the death of a globally significant, highly manipulated, and intentionally inflated commodity looks like.
So if your uncle is telling you that "now" is the time to buy his broker's favorite oil ETF I can guarantee that (barring a global cataclysmic event) you will be catching a falling knife and had better wait until the $22 - $14 level before loading up on any longs correlated to crude oil markets.
Happy trading.
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