Severely Oversold Crude Oil Tests Support. Looks Attractive!
Crude oil is starting to look attractive to me. You can see here on the monthly crude oil futures chart that the biggest drawdowns of the past four decades have all been in the 70% range. There was a 70% drawdown in the 80's, one in the 90's, one in 2008, on in 2014/2015, and we are currently having one now. Since the beginning of the year, curde has fallen 69%. So, if you just consider the percentage losses of previous drawdowns in history, they don't generally go much lower than 70-77%. Also, crude oil is oversold on practically every time-frame known to man. You can look at the daily chart, the weekly chart, and even here on the monthly chart, oil is oversold. So, that also suggests that we could (at the very least) see a technical rally soon.
Furthermore, we can see that the oil price has been inside of a very clear falling wedge pattern (blue trendlines.) As you can see, price is currently testing the bottom of the falling wedge, which could act as support. So, we are actually at critical support right now, while the oil market is severely oversold, and it has retraced nearly 70%, which is in line with most of the major retracements of the past four decades.
With that said, it is possible that oil could break down below the falling wedge. In that case, I see major support at about 17.25ish. If that level is taken out, there is massive support in the 10.00 range. You can see that oil has never really broken down below 9.75, which was the absolute low from 1986.
Now, we are in the early stages of a major recession. So, that is something that's also worth considering. Usually, oil doesn't perform that well during a recession. You can see that it had a big fall in 2008, but it was also at an all time high. When the dot com bubble ruptured, oil was actually pretty stable, and just had a bit of a pull back, while it remained in a much large bull market.
Speaking of the recession, all of my followers know that I am particularly concerned about credit markets in this recession. I am absolutely convinced that the final top is in for equity markets, and we are clearly in a global recession that is just getting started. As a side note, I've been closely monitoring credit spreads, and the activity there is very alarming. You've all heard me talk about the dangers of reserve banks losing control of interest rates, and the potential of a dollar collapse as a result. I believe that the coronavirus was the black swan catalyst, but the underlying debt crisis is very likely to take over where coronavirus left off. In the event that we DO see a credit market meltdown, I think commodities are likely to be a reliable safe haven. Gold, oil, wheat, corn, copper, and other similar materials are likely to see massive investor demand if there is a dollar crisis resulting from a credit market meltdown. Simply because you can't bankrupt a commodity, and these materials that have real world use and intrinsic value that will likely cause their prices explode, if inflation becomes a problem in the economy. Central banks can't continue to print trillions and trillions of dollars without generating inflation. I think we will eventually see that, and I think the markets will eventually stop responding to stimulus injections in general. At that point, everyone will probably want to be in commodities and hard assets, which will rise (inflate) relative to other currencies.
Oil is clearly not in a bull market at the moment. However, it is severely oversold, and I think that there is a high probability that it will be worth more than it is now, at some point in the future, even if it falls lower in the short-term.
I'm The Master of The Charts, The Professor, The Legend, The King, and I go by the name of Magic! Au revoir.
***This information is not a recommendation to buy or sell. It is to be used for educational purposes only.***
-JD-
Furthermore, we can see that the oil price has been inside of a very clear falling wedge pattern (blue trendlines.) As you can see, price is currently testing the bottom of the falling wedge, which could act as support. So, we are actually at critical support right now, while the oil market is severely oversold, and it has retraced nearly 70%, which is in line with most of the major retracements of the past four decades.
With that said, it is possible that oil could break down below the falling wedge. In that case, I see major support at about 17.25ish. If that level is taken out, there is massive support in the 10.00 range. You can see that oil has never really broken down below 9.75, which was the absolute low from 1986.
Now, we are in the early stages of a major recession. So, that is something that's also worth considering. Usually, oil doesn't perform that well during a recession. You can see that it had a big fall in 2008, but it was also at an all time high. When the dot com bubble ruptured, oil was actually pretty stable, and just had a bit of a pull back, while it remained in a much large bull market.
Speaking of the recession, all of my followers know that I am particularly concerned about credit markets in this recession. I am absolutely convinced that the final top is in for equity markets, and we are clearly in a global recession that is just getting started. As a side note, I've been closely monitoring credit spreads, and the activity there is very alarming. You've all heard me talk about the dangers of reserve banks losing control of interest rates, and the potential of a dollar collapse as a result. I believe that the coronavirus was the black swan catalyst, but the underlying debt crisis is very likely to take over where coronavirus left off. In the event that we DO see a credit market meltdown, I think commodities are likely to be a reliable safe haven. Gold, oil, wheat, corn, copper, and other similar materials are likely to see massive investor demand if there is a dollar crisis resulting from a credit market meltdown. Simply because you can't bankrupt a commodity, and these materials that have real world use and intrinsic value that will likely cause their prices explode, if inflation becomes a problem in the economy. Central banks can't continue to print trillions and trillions of dollars without generating inflation. I think we will eventually see that, and I think the markets will eventually stop responding to stimulus injections in general. At that point, everyone will probably want to be in commodities and hard assets, which will rise (inflate) relative to other currencies.
Oil is clearly not in a bull market at the moment. However, it is severely oversold, and I think that there is a high probability that it will be worth more than it is now, at some point in the future, even if it falls lower in the short-term.
I'm The Master of The Charts, The Professor, The Legend, The King, and I go by the name of Magic! Au revoir.
***This information is not a recommendation to buy or sell. It is to be used for educational purposes only.***
-JD-
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