Candlesticks, Commodities, and Crude
The newspapers this morning carry two stores which appear to be in conflict with each other.
They probably aren't, if you discount the effect of timing.
One story discusses a world awash in crude oil, with places in which to store it running short of remaining capacity, even to the extent that oil tank ships are being paid tens of thousands of dollars per day just to remain at anchor offshore with nothing for the crews to do except to repaint the decks.
The second story discusses the merits of buying, right now, shares in an exchange traded fund which features Crude Oil as one of its value calculation bases, upon the assumption that the present glut of Crude Oil will soon pass and that we will see a return to the shortages and price expansion of past years.
It's all in the timing.
Both stores can be considered correct, if you are willing to discount the effect of the passage of time.
In that regard, an examination of the candlestick patterns in Crude Oil may give us some clues as to the likely path of its price over the short term.
It is said that "high prices cure high prices, and low prices cure low prices.
" Right now, we have a condition of low prices.
This condition has been caused by continued pumping of crude out of the ground at a time when demand has been declining worldwide, lately at an accelerating pace.
Obviously, this cannot go on forever.
One result has been a belated recognition by the major producing countries that they are pumping more oil than the world can use, and therefore that they have no choice to reduce production even though the loss of revenue is very hurtful to their domestic economies.
Let's look at the candlestick patterns.
In the April contract, prices made a new low of $37.
41 per barrel on February 18.
The opening price was the same as the high of the day; the closing price was the low of the day.
The candle showed no "tails" at all.
On February 24, prices rose in a white candle, indicating that the close of the day was higher than the open of the day.
Prices gapped higher on opening during the following two days, ending in a white candle, and it appeared that prices might be off to the races again.
However, the following day was marked by another white candle, but - tellingly - prices closed lower than the day before.
Standing by itself, that was a good day; but when all was said and done the bulls had failed to drive prices higher than those of the day before.
Actually, the candlestick formation of that day was very close to a "last bullish engulfing" pattern, which is bearish in spite of its name.
The next day told the story, when prices gapped lower on opening, closed lower than the opening, and lost $4.
61on the day.
A review of the Weekly chart of Crude Oil reveals that the entire price decline since last July is marked by a series of lower highs and lower lows, which of course is the mark of a downtrend.
It is clear from the chart that the rate of decline is slowing, and that prices are "saucering.
" Will they rise out of the other side of the saucer, or is what we are seeing only a temporary net rise from the low of February 18? Today's gap-up opening and $3.
73 higher close argue that prices are already out of the other side of the saucer.
It will be another few days of price development before we can know whether this rise is real or whether, on the other hand, prices are headed for a new Low.
We will be watching for Candlestick reversal patterns to give us some inkling of what's in store for Crude next.
The most unfortunate part is that money for exploration and development is being held back at precisely the time when those investments would be most valuable in years ahead, as the world economy recovers.
They probably aren't, if you discount the effect of timing.
One story discusses a world awash in crude oil, with places in which to store it running short of remaining capacity, even to the extent that oil tank ships are being paid tens of thousands of dollars per day just to remain at anchor offshore with nothing for the crews to do except to repaint the decks.
The second story discusses the merits of buying, right now, shares in an exchange traded fund which features Crude Oil as one of its value calculation bases, upon the assumption that the present glut of Crude Oil will soon pass and that we will see a return to the shortages and price expansion of past years.
It's all in the timing.
Both stores can be considered correct, if you are willing to discount the effect of the passage of time.
In that regard, an examination of the candlestick patterns in Crude Oil may give us some clues as to the likely path of its price over the short term.
It is said that "high prices cure high prices, and low prices cure low prices.
" Right now, we have a condition of low prices.
This condition has been caused by continued pumping of crude out of the ground at a time when demand has been declining worldwide, lately at an accelerating pace.
Obviously, this cannot go on forever.
One result has been a belated recognition by the major producing countries that they are pumping more oil than the world can use, and therefore that they have no choice to reduce production even though the loss of revenue is very hurtful to their domestic economies.
Let's look at the candlestick patterns.
In the April contract, prices made a new low of $37.
41 per barrel on February 18.
The opening price was the same as the high of the day; the closing price was the low of the day.
The candle showed no "tails" at all.
On February 24, prices rose in a white candle, indicating that the close of the day was higher than the open of the day.
Prices gapped higher on opening during the following two days, ending in a white candle, and it appeared that prices might be off to the races again.
However, the following day was marked by another white candle, but - tellingly - prices closed lower than the day before.
Standing by itself, that was a good day; but when all was said and done the bulls had failed to drive prices higher than those of the day before.
Actually, the candlestick formation of that day was very close to a "last bullish engulfing" pattern, which is bearish in spite of its name.
The next day told the story, when prices gapped lower on opening, closed lower than the opening, and lost $4.
61on the day.
A review of the Weekly chart of Crude Oil reveals that the entire price decline since last July is marked by a series of lower highs and lower lows, which of course is the mark of a downtrend.
It is clear from the chart that the rate of decline is slowing, and that prices are "saucering.
" Will they rise out of the other side of the saucer, or is what we are seeing only a temporary net rise from the low of February 18? Today's gap-up opening and $3.
73 higher close argue that prices are already out of the other side of the saucer.
It will be another few days of price development before we can know whether this rise is real or whether, on the other hand, prices are headed for a new Low.
We will be watching for Candlestick reversal patterns to give us some inkling of what's in store for Crude next.
The most unfortunate part is that money for exploration and development is being held back at precisely the time when those investments would be most valuable in years ahead, as the world economy recovers.
Source...