After the sell-off in crude oil the week-ending January 3, one would have thought that technically oversold trading conditions would have triggered the start of a short-covering rally. In addition, chart watchers would have been looking for some sort of technical bounce off the pair of Fibonacci price levels at $94.14 and $93.46. Finally, some would have even been looking for the selling pressure to subside near the recent bottom at $92.10.
This wasn’t the case, however, during the week-ending January 9 as short-sellers and weak longs continued to exit this market en masse, The inability to even mount enough counter-trend buying power or attract fresh bottom-picking typically means that the market hasn’t even reached a value zone yet.
Taking out the recent bottom at $92.10 with conviction should create enough downside pressure to challenge the June 2013 bottom at $90.05. If downside momentum continues then the April 2013 bottom at $85.57 will be the next target.
Because of oversold conditions on the daily chart, the market is ripe for periodic short-covering rallies. The main trend is clearly down on the weekly chart and this was reaffirmed when the swing bottom at $92.10 was taken out. The new main top is at $100.75.
The main trend will remain down until this top is violated. Until this occurs, traders are likely to sell rallies. Due to the size of the current break from $100.75, one would expect to see retracements of $4.00…