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Oil Slides Below Support


On October 27 oil (CL) made a false breakout below support at $44.31, the low throughout September. Following the false breakout it rallied to a November 3 high of $48.36. Since that high the price has once again fallen below support, and the October 27 low at $42.58.

The recent move lower indicates momentum has shifted back to the downside on the shorter time frames, in alignment with the longer-term downtrend.

The next test for oil is the $39.22 low from August 24.

Figure 1. December Light Sweet Crude (CL) - Daily Chart

The expectation is that oil will continue to decline toward $39.22. That region is anticipated support, although a downside breakout could occur given the short-term and longer-term selling momentum and downtrend. If the price does break lower, $38 to $37.5 is the next expected support/target zone.

A rally back above $44.5 warns of another false downside breakout. It isn't necessarily a buying opportunity but could indicate a short-term rally into resistance near $48 and/or $50. A rally beyond those higher resistance levels isn't an immediate concern at the moment, but indicates a further rally into the $58 region.

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