On July 9, 2016 I posted here my admittedly amateur interpretation of technical analysis of the price of Brent Crude oil, citing a chart formation that predicted a drop in price to at least $43/barrel.
On July 28, its price reached $42.63/barrel.
I think it’s fair to say that all the many variations, or types, of technical analysis are based on the idea that all knowledge, hopes, fears, rumors, speculation, etc. regarding a traded security – or of a market as a whole – are reflected in its price and that certain chart behavior, often also depending on buy/sell volume, indicates a probable move in a certain direction, and sometimes even the extent of that move .
What little I have learned in this field came from the classic “Technical Analysis of Stock Trends” by John Magee and Robert D. Edwards (1986). But my attempts in past years to put this reading to use as investment policy proved, to say the least, unsuccessful.
It has, however, shown itself useful on occasion.
This post is not intended in any way as investment advice or as a suggestion to take any particular approach to investment or as a suggestion to buy any publication. I receive no compensation of any kind for any of these remarks and do not have a position in any stock/commodity mentioned.
I do have an interest in the general economic health – and possible future – of oil/gas companies which of course are vitally affected by the price of crude oil.
I also thought a few here might be curious as to just what technical analysis was used – and how – in the prediction mentioned in the first paragraph.
Take a look at the included one-year chart of Brent Crude oil prices.
Draw an imaginary line across the diminishing high peaks of June and continue it to the right. Draw an imaginary line across the low tips at about 48 and continue it to the right. These constitute a “triangle” formation, the base of which was violated downward on July 7 on relatively high sell volume.
In classical technical analysis this predicts a probable continuation downward from the base at 48 to an amount equal to the height of the triangle – 5 – taking it at least to 43.
In this case that application of classical technical analysis proved accurate.
I think there’s no question that the current price of crude oil, if maintained, poses a threat to many oil/gas conglomerates: inability to profit; inability to repay debt incurred when prices were $100+/barrel; inability to sustain previous exploration/drilling plans; inability to attract investors with competitive dividend rates, etc., etc.
Will the future continue to be problematical for oil/gas conglomerates? Will crude oil prices settle in a price range where most in the industry can thrive or at least survive? Or will classic supply/demand economic factors create a swath of death and destruction among them?
Only “The Shadow” knows.
William Smithers
Santa Barbara