Crude Oil Reverting To The Mean, $70 Area Key Level

It’s been awhile since my last crude oil update.  I’ve been busy with some other projects and just haven’t had much time to focus on the market.  In my last report way back in January, crude had broken out above a trading range and was on its way to $100 once again.  It actually shot through the $100 level and hit up around $115 before a major pull back as the overall market went through a big time correction in August.  Commodities tend to get hit hard during any market correction and this time is no exception. 

Crude oil as indicated in the chart below remains in a firm downtrend with the 50 day moving average (the blue line) acting as an important resistance point at each bounce.  There is no reason at this point to believe that the correction in crude is complete even with stochastics indicating oversold levels.  Remember that stochastics is a secondary indicator to be used in conjunction with volume readings as well as support/resistance readings.  My feeling is that oil will need to retest that $70 range and bounce around for quite some time before a healthy rally can take place again.

I mentioned in that last report that the price of crude has entered a new reality and I still believe that to the case even as significant oil discoveries are made.  The pace of industrialization across the world is too big a factor.  The only way I see crude crashing below the $70 level is if China does experiences a bubble pop.  There are some indications that this could happen.  Of course, in that case it would be ugly for any sector not just crude oil.