Where are gold and crude oil going ?
Since mid july, the oil barrel started to decline. Since then, we have seen an impressive market rally and an oil price that is still declining. All the financial press is now trying to make predictions on where are oil and gold and other commodities going. Is it the time to buy on the dip or sell it, or short it?
Here is what I think, based on my technical analysis. Note that this analysis is based on my short term target price.
First, take a look at crude oil. Here is the chart of the last 6 months.
In 1 ou can see a line that I draw that links four different points on the chart. This is the trend line identifying the last uptrend of the crude oil. This trend has been broken below 135$ mid July.
Later in July, you can clearly see that the established support in June at 132 has been broken few days later (line identifed by 5). So there we have two technical bearish signs, an uptrend broken and a support broken.
Then, the line 4 represents a 3 time tested support at 120$. The support have been tested in May, June and July. A tree times tested support is considered a solid and important support. This one has been broken at the end of July/beginning of August. This is another bearish sign that establish a clear down trend.
At 3, the line represent the next support. This is the next step where the price of crude oil should stop. This will be another important point, but this support has been tested only once. So I think that this one should not hold very long. You can see that the previous support at 4 has been tested few times before being broken. The price stabilized just above of it for almost a week before going lower. This is another sign of important support.
I think that the line 3 do not represent a strong support. I think that the price of crude oil is headed to something around 100$ on a short term basis (few weeks). You can see at this price level that there is an already established and tested support. This support has been tested on February, March and April. This is a sign of strong support. So I expect to see some price stabilisation at this level. Then we will wee what happen. This could be the time for a rebound, or just a pause of a few days or few weeks before going lower. I think that this support should be tested a couple more times before going lower, if it has to go lower.
So short term, I think that that oil is going to trade around 100$ sooner than later. At this level, this will be the time to make a new in depth analysis of the price action. So for a short term profit, short oil if it breaks the 110$ support (line 3) and buy back around 100$. Now is clearly not the time to take a long position in crude oil or energy stocks.
Now, let's see where gold is going. First, take a look at the one year chart of gold.
The line 1 links 3 different support. This line is the trend line of the last up trend in the price of gold. This trend has been broken below 950 in March.
Line 2 represents a very important support. You can see on the chart that this support has been tested 3 times, in January, in April and in June. Each time the price reached this level, each time the gold price went higher in 2008. So, it means that the 850$ for gold is a very important level. You can see that the today's price action (August 11th) clearly broke this support. When an important established support like this is broken so sharply and strongly, this is a very bearish support. The chart is clearly drawing a downtrend now. So gold is clearly going lower now.
The next support is identified by the line 3. This support has already been tested twice, in November 2007. This support is not as significant as the one broken today (line 2). I think that short term (few days or week) this is clear, based on the current trend and price action, that gold will reach the 775$ level. Then at this level, we will see what the price action will.
My take is that the established support broken today was so important and has been broken so sharply that I think that the gold price is going a lot lower on a few months scale. Time will tell, but keep in mind two things : first, another good analysis of the price action should be done when the support of 775$ is reached and second, if you do not want to lose money, avoid gold and gold stocks for now.
So, you can use these informations to trade GLD, USO or any other ETF that represent oil, gold or their relative sectors.