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Oil still in bear country
Colin Abrams
Posted: Wed, 01 Apr 2009
[miningmx.com] -- OIL is by far the world's most important commodity. After having a "waterfall" price drop in second half 2008, it appears to have stabilised.
We look at the chart of Brent crude to ascertain a future price target. We also look at South African oil stock Sasol to see what its chart is showing. Both the charts for Brent and Sasol are pointing to more short-term upside (but with an expected minor pullback for buying in the interim). However, despite a rally there's no evidence as yet of oil's bear market being over.
BRENT CRUDE - HIGHER TARGET
Trend: Short term up, but overbought. Medium term sideways. Long term down.
Strategy: Traders only buy on a minor pullback.
* Brent crude has been moving sideways over recent months in a symmetrical triangle (lines 1 and
2). Although the triangle isn't classically formed, the price has recently broken out to the upside.
* The target from this triangle is US$62,80/barrel (spot price), measured as the height of the triangle projected up.
* The short-term stochastic oscillator (on top) is overbought, so a short-term pullback is expected before more upside.
* Use a pullback to $48,50-$47 to buy - for traders only. Then take some profits at $54 and the rest as it nears the target.
* Place your initial stop-loss as a closing price below $46 when buying on a pullback.
* Note: As things stand this is still a bear market rally, with a high probability of one more down leg after this rally is complete.
SASOL - TRADING OPPORTUNITY
Trend: Short term up, but overbought. Medium term sideways. Long term down.
Strategy: Traders buy on a pullback towards line 4
support.
* Sasol recently broke out of a falling wedge (lines 1 and 2) to the upside. It's pointing to a higher target to come off R327 (measured as the height of the wedge projected up).
* However, the short-term stochastic oscillator is overbought, which favours a pullback before more upside.
* We're looking for a minor pullback only. So traders buy on a pullback to R278 or lower. Line 4 support is at the R274 level.
* Take some profits at R320 and more at the R327 target. Thereafter, use a breaking of its prior one-day low as your trailing stop (to allow for further upside).
* Initial stop-loss is a closing price below R272 when buying on the pullback.
* There's a high probability of a final down leg (as with the oil price) once this relief rally is over. As such, we're viewing this as a bear market rally, with a better buying opportunity for longer-term investors still to come.
Please note: For more
recommendations and charts by the author on shares, stock indices and commodities please go to www.themarket.co.za.
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