MCX CRUDE LIVE CHART

Charts suggest decline in crude oil may be overIn our previous essay, we examined the situation in crude oil in different time horizons. Back then, we wrote that the short-term situation had improved as crude oil had broken above both short-term resistance lines on relatively high volume and had come back above the previously-broken medium-term support line and the long-term one.

In the following days, crude oil extended gains and approached its 200-day moving average. What’s next? Is the worst already behind oil bulls and we will see further improvement? Before we try to answer these questions, we’ll examine three interesting ratios to see if there’s anything on the horizon that could drive crude oil higher or lower in the near future. Let’s start with the oil-to-oil-stocks ratio (charts courtesy by http://stockcharts.com).

At the end of October, the ratio declined and broke below the long-term declining support line created by the 2012 and 2013 lows. Additionally, the WTIC:XOI ratio verified the breakdown, which was a strong bearish signal. In our previous Oil Investment Update we wrote that as long as the breakdown below the bold blue support line was not invalidated, another downswing couldn’t be ruled out.

Looking at the above chart, we see that the ratio reached the next long-term support line (marked with the thin blue line on the previous chart) and rebounded sharply in the previous week. In this way, the ratio invalidated the breakdown below the support line based on the 2012 and 2013 lows, which is a strong bullish sign.

Last week, the ratio reached its 50-day moving average and reversed the course – similarly to what we saw in April, May and June. However, we should keep in mind that back then, new lows in ratio didn’t trigger a fresh low in crude oil. Therefore, if history repeats itself once again, we may see lower values of light crude in near future, but another big move lower doesn’t seem likely.