With U.S. production levels remaining steady and OPEC not showing any signs of letting up on its current daily production output, investors may have to turn to technical analysis to get an early indication of bottoming action by crude oil futures.
There are numerous technical indicators or oscillators to watch, but most are coincidental. In other words, they tend to turn higher after the market has reached its bottom and rallied. Furthermore, when looking at the raw data generated by these types of indicators, they often indicate that conditions have been oversold for several weeks, further supporting the notion that they lag rather than lead the market.
Experience has shown that following the price data rather than the smoothed oscillator data shows what traders are actually doing. The swing chart is one tool used to determine if the selling pressure is picking up momentum or slowing down. The data pulled from this chart shows whether the selling pressure is expanding or contracting. This is essentially an indicator that shows whether the sellers have enough confidence to continue to press the market lower aggressively, or whether they are lightening up on their conviction.
When a market is trending lower like crude oil, bearish traders tend to press it lower more aggressively near a top when it first starts to show signs of weakness. The selling begins to expand when speculators pick up on the technical trend and the bearish fundamental news. As the market…