Wednesday, May 27, 2015

West Texas Crude (WTIC): Rising Wedge Breaks and Price Begins to Decline - How Far Will It Fall?

The two daily closing price charts below, one short-term, one long-term, both suggest that WTIC could decline to about the $53 level to establish untested support.  As shown on the short-term chart, three previous breakouts appear have been tested.

As shown on the short-term chart,  WTIC began its recent decline soon after breaking below a steep rising wedge (as identified in previous post on WTIC).   WTIC's price continued to climb for a bit beneath the wedge, until the wedge lines were both tested as resistance.  As shown on the MACD portion of the short-term chart, a bearish cross-over then occurred as WTIC's price began to "roll-over".

Does WTIC have to fall all the way to about $53? - No! 

Could WTIC fall below $53? - Yes!  

This is just one relatively logical interpretation of the charts that may or not be manifested.  It will be interesting to see what happens from here.  

So, in any case, based on this analysis, a strategy I would consider if oil was an appropriate and desirable investment for me, would be to be a buyer (long position) if the support line at about 53 was successfully tested.  Then I would use this support line to protect my initial investment.  If WTIC clearly dropped (closed) below the support line, I would sell. If not, I would conduct further analyses and use an adaptive management strategy to protect my gains going forward - this could include identifying: 1) higher resistance lines (establishing higher support lines to protect gains, or not), 2) overbought conditions using RSI and Bollinger Bands, and 3) bullish/bearish crossovers using MACD. 

Again, just a reminder, this is not investment advice! This is not a recommendation to invest in oil either short or long.  This is just an example of how technical analysis could possibly be used to understand price movements in a commodity (in this case) and develop a patient, logical, and disciplined "buy and protect" investment strategy.

Click Chart to Enlarge

Click Chart to Enlarge

Not Investment Advice | Important Disclaimer: 
The content in this article, including the identification and discussion of any specific security (e.g., bond fund), is NOT meant to be and should NOT be construed and/or used as investment advice. This article is for general information and educational purposes only. Please read the Disclaimers  for in their entirety. The U.S. Securities and Exchange Commission website has guidance on selecting an investment adviser.

Financial Disclosure:
The author/publisher has no position in oil at the time this article was written.

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