One of the big questions for the rest of the summer is if, and when, the great stock market meltdown will occur. But you could also ask, what happened to the melt “up” for crude oil?
As recently as last month it would have been relatively easy to suggest a massive rally for the commodity. This was as the situation in the Middle East flared up, on the back of tensions in Iraq, Syria and Israel, and as Russia cut off supplies to the Ukraine.
It could have been argued, and perhaps still can, that there is plenty of ammunition with which to regard the direction for crude oil as only going one way – to the upside.
As the daily chart of front month crude shows, despite the conflicts in recent months, it can be seen that after an initial blip the commodity has served up a rather painful looking bull trap retreat. The present charting position shows that, while there may have been suffering on the part of the bulls, we could have an opportunity to bottom fish at the floor of a rising trend channel, which has been in place since November.
The floor of the channel nominally runs through the intraday floor of July at $99.01. The implication is that any near term weakness towards the $99 zone can be regarded as a dead cat bounce catching opportunity.
Perhaps what is really of interest as a knock on from the price of crude is the issue of where its current plight towards $100 leaves leading UK oil stocks.
What we have seen at BP (BP.) is a recent pullback from the 520p plus zone, off an early 2014 resistance line. The current position is that we are expecting a resumption of the build seen so far this year. However, given the somewhat fiddly technicals, and a rather obscure uptrend line from March, it may be that we are best served by a momentum buy trigger as a new entry signal.
The best on offer at the moment looks to be an end of day close back above the 50 day moving average, which is now at 508p. The aftermath of such a trigger is expected to lead back to a partial or even full retest of the June resistance by the end of August.
Royal Dutch Shell (RDSB)
The setup as far as Royal Dutch Shell (RDSB) is concerned would appear to be as encouraging, if not more so, than what we are seeing at BP. This is because we have the aftermath of an extended climb along the floor of a rising trend channel from February / the 50 day moving average at 2,516p.
The implication is that there is a decent risk / reward buy trade on tap, especially given the RSI indicator support at and above the neutral 50 level. The call is therefore, that while there is no end of day close back below the 50 day moving average, we should be primed for a push to the 2014 resistance line, currently heading through 2,700p. The timeframe on such a move is seen as being as soon as the next 4-6 weeks.
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