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Welcome to Profit Confidential • Wednesday, May 23, 2012

Will Oil Keep Going Down?

Wednesday, August 6th, 2008
By George Leong, B.Comm. for Profit Confidential

Oil made a downside break below $120.00 in trading on Tuesday, when the light sweet crude for September delivery on the NYMEX retrenched further on demand concerns. The recent weak second-quarter GDP renewed concerns that demand will continue to be hampered. With the decline, oil has fallen about 18% from its $147.00 peak on July 11, and it is near a bear market.

While demand is an issue, factors that could drive up oil are ropical storms brewing in the Gulf of Mexico and continued concerns relating to Iran’s nuclear program that is said to include weapon testing. In our view, these are key factors, but the oil market appears to be pushing them aside and instead focusing on the bearish sentiment that is currently pressuring oil.

The chart shows a downward trend in oil that at this time appears to have some legs to move lower. Because of the steady climb in oil, there is no strong base where we see buying support until you get to the $100.00 level.

The near-term technical picture for the September light sweet crude continues to be bearish, with declining Relative Strength that is well below neutral, indicating more potential selling in the near term. Yet, with the price decline, oil is oversold and looking for support.

The support has not held, as September oil has broken below its 100-day moving average at $123.01, and it is languishing just below $120.00. Look for support at the recent low of $118.00 and $116.45. The 200-day moving average is at $106.95. The downtrend remains intact and will continue that way unless we see a trend reversal on the charts, which has yet been the case.

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Profit Confidential AuthorGeorge is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.

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