September Oil Is Walking A Thin Line

Next week, we'll be celebrating the six-month anniversary of the September Crude Oil bottom at $32.85. This will come in on July 20. This week, we want to take a more detailed look at the trading action in terms of both price and time. 

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Technically, the main trend is up according to the weekly swing chart. At this time, the trend is in no danger of turning down according to the swing chart. However, momentum has been to the downside since the week-ending June 10.

From January 20 to the week-ending July 15, the market has made two major up swings and two major down swings.

The first rally was from January 20 to March 18. This move lasted 41 trading days or 8 weeks. This was followed by a break from March 18 to April 5, or 11 market days or 3 weeks.

The second rally was from April 5 to June 9. This move lasted 46 trading days or 9 weeks. The current downswing started on June 9. At this week's end it will have been in place for 25 market days or 5 weeks.

This information tells us that the market is in a weak position. The two rallies essentially balanced each other out, with 8 and 9 weeks respectively. I know the chart pattern is supposed to take into consideration all possible factors influencing price, however, we probably would've balanced each rally at 8 weeks if not for the Canadian wildfires and the Nigerian terrorist attacks - two extraordinary events.

Crude oil is in a weak position because the current down move has exceeded the previous down move in terms of time. And time turns the trend.

As far as price is concerned, the first leg up was $11.50. The second leg up was $14.06. If we had seen an $11.50 rally from $38.67, the top would have come in at $50.17. The two-highs the week-ending May 27 at $50.92 and the week-ending June 3 at $50.33 were in the ballpark for an exact balance of price, but again because of the two extraordinary events, it eventually made its top at $52.73.

The first break was from $44.35 to $38.67. This move was $5.68. A similar break from $52.73 would have targeted $47.05. However, the current break as of the week-ending July 15 is $7.53. So in addition to time, price has overbalanced the previous break.

Although the swing chart is showing an uptrend because of the higher-tops and the higher-bottoms, we are essentially in a downtrend because both price and time have exceeded their previous moves.

Rather than confuse anybody, let's just say that the swing chart still says the trend is up because we haven't taken out a swing bottom, but that the momentum is down.

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The Gann angle chart shows that September Crude Oil will remain in an uptrend unless the dominate angle from the $32.85 main bottom that has been guiding the market higher for 25 weeks is broken with conviction. This means heavy selling comes in to take out the angle.

During the week-ending July 22, the key uptrending angle comes in at $45.85. Taking out this angle next week will be another sign of weakness. This move could trigger an acceleration to the downside.

On the upside, the key resistance angle comes in at $46.73. Taking out this angle and sustaining a rally above it will signal that buyers are coming in to support the market. This could trigger an acceleration to the upside with the next target angle coming in at $49.73 the week-ending July 22.

Retracement zones could also help us define support and resistance areas as well as the strength or weakness of the crude oil market.

The main range is $32.85 to $57.73. Its retracement zone at $42.79 to $40.44 will be the primary downside target if this market retraces the entire six-month rally.

The short-term range is $38.67 to $52.73. Its retracement zone at $45.70 to $44.04 is currently being tested with the upper or 50% level at $45.70 acting like support the last two weeks. Trader reaction to this zone will determine whether the selling stops and the uptrend resumes, or if we are going to test the major retracement zone.

Conclusion

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Putting it all together, next week the key area to watch will be $45.85 to $45.50. This area is formed by the combination of the long-term uptrending angle and the short-term 50% level.

If $45.50 fails as support then look out below because the weekly chart shows there is no support until $44.04. This is also a trigger point for an acceleration to the downside with potential targets at $42.79 and $40.44 over the near-term.

If the market breaks through $45.70 and continues to remain under the steep downtrending that is dropping $1.00 per week from the $52.73 top then we could see an eventual test of $40.44 by the week-ending September 2. The key resistance angle we anticipate will eventually guide prices lower drops in at $46.73 next week.

Taking it one week at a time, look for a firm tone to develop on a sustained move over $46.73 next week, and a bearish bias to develop on a sustained move under $45.70.