Oil's whiplash above $30: dead cat bounce or dou­ble-bot­tom base?

The Pak Banker - - MARKETS/SPORTS -

The oil mar­ket's roller-coaster ride this year is not over yet, tech­ni­cal an­a­lysts warned, with new lows likely to come af­ter traders catch their breath.

US oil fu­tures for March CLH6 surged 13.5 per­cent on Thurs­day and Fri­day, eras­ing nearly half the losses racked up since the start of the year as bear­ish traders cashed out.

While al­most no one ex­pects this to mark the start of an ex­tended re­cov­ery amid a per­sis­tent global sup­ply glut and wor­ries over the Chi­nese econ­omy, many are ask­ing whether this is fi­nally the end of an 18-month slide.

For some of the an­a­lysts it had the hall­marks of a clas­sic dead-cat bounce, a nat­u­ral pause in the tail­spin that had sucked prices below $30 a bar­rel for the first time since 2003 - with still lower lows lurk­ing in the weeks ahead.

"I don't think we've found a bot­tom yet," said Fawad Raza­qzada, tech­ni­cal an­a­lyst for Forex.com and City In­dex in Lon­don. He does not ex­pect prices to ex­tend their re­cov­ery to above $35 a bar­rel, the level needed to pre­vent a fur­ther slide. U.S. crude closed at $32.19 on Fri­day, up 9 per­cent. "For me, there's been no clear tech­ni­cal or fun­da­men­tal sig­nal that prices have not bot­tomed out. This is a mere over­sold re­cov­ery, there­fore I think prices will fall back again."

Wal­ter Zim­mer­mann, vice pres­i­dent and chief tech­ni­cal an­a­lyst at bro­ker­age ICAP in Jersey City, also ex­pected prices to fall to new lows al­though he noted that the charts were not de­ci­sively bear­ish.

"It may be a dy­ing cat bounce but it has a lit­tle too much vim and vigor to be a dead cat bounce," Zim­mer­mann said. He put key re­sis­tance at $34.65 a bar­rel. "That doesn't mean it's not a bear mar­ket cor­rec­tion." He pointed to weekly can­dle­stick charts that show a po­ten­tially bullish sig­nal called a "ham­mer bot­tom," with the lat­est week open­ing and clos­ing near its highs fol­low­ing a week that closed well below its start­ing point.

If the mar­ket falls below $26.19, how­ever, the next crit­i­cal sup­port level will be crit­i­cal sup­port rang­ing from $25$21, he said.

Some re­called sim­i­lar price ac­tion in Au­gust, when bear­ish traders piled on short po­si­tions for weeks be­fore abruptly re­vers­ing course, send­ing oil up more than 25 per­cent in three days.

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