Based on the bearish fundamentals and technicals of the CL market, is it possible to get to the $40 mark?
Fundamentally, crude oil prices have fallen dramatically and this trend could very well continue based on the latest from Hightower's morning commentary from July 24, which said, "Reports of trouble at a hedge fund, fresh technical damage on the charts and awareness that the spec and fund long in crude oil futures remains large, gives the bear camp plenty of ammunition to extend the downward thrust in prices. While we don't expect crude oil prices to fall down to some of the ultra-bear targets of $30-$40 a barrel, we can't argue against a retest of weekly consolidation low support of $47.57 per barrel. Unfortunately for the bull camp, stronger U.S. data and strong U.S. implied gasoline demand looks to have no capacity to halt or slow the slide in crude oil on this liquidation wave. In the last COT positioning report, the spec and fund long in crude oil weighed in at a very burdensome 292,000 contracts!"
That is no surprise to me especially when you take into consideration that the Chinese economy seems to be on shaky ground, supply levels of crude oil here in the United States according to the U.S. Energy Information Administration (EIA) stand at about 463,885 barrels, and the fact that prices are still falling even though congress is not crazy about the Iranian deal.
Finally, my indicators are showing an outside market like the U.S. Dollar Index futures is in an upward trend and this could continue to keep crude and the rest of commodities in this deflationary period.
Technically, I have added my favorite technical indicators to the gold chart below. They are the 10- (red line), 20- (green line), and the 50- (blue line) period simple moving averages (SMA). I have also added Bollinger Bands (BB) (light blue shaded area) and Candlesticks (the red and green bars). On the daily chart below each bar or Candlestick represents one day of trading. I have coined this combination of my favorite technical indicators the 10/20/50/BB Trend Finder system.
On the daily chart below the September crude oil market is in what I have coined a "Principal-Trend" down, which is the strongest from of a trend that the "10/20/50/BB Trend Finder" can show. The first item that must occur for the "Principal-Trend" down to be in effect is the 10-day SMA (red line) must cross down and under the 20-day SMA (green line). This occurred on June 29 as you can see on the daily chart below. The second is that the 10-day SMA and the 20 day SMA must both be pointing lower on fairly sharp angles while at the same time the market itself must be trading below the 10 day SMA. This occurred on about July 7 as you can see on the chart below. Finally, the market must be trading below the 10-day SMA and the 10-day SMA must be the first area of resistance, meaning each time the market rallies up to the 10-day then it holds and goes on to make new lows. This has been happening for some time now.
September crude oil, daily