Using Technical Analysis To Forecast Crude Oil Prices

There can be tiny question that energy costs have profound effects on all areas of the economy. Leading up to the Market top and subsequent crash in 2008, oil prices rose to unprecendented levels. It could be stated that rising energy costs has as profound an affect on the economy as the credit default swap scandal.

That said, it would make sense to track and forecast crude oil prices as part of your high level market analysis process. Fortunately, it is perfect legitmate and effective to apply technical analysis techniques to crude oil prices, making it doable for tradeers to determine approach term price movements in crude.

Using charting software such as stockcharts.com, traders can examine chart patterns and apply technical indicators to predict the future direction and degree of movement. I advocate utilzing Monthly charts for determining the overall trend of crude oil, and weekly charts for analyzing chart patterns and regular charts for confirming sample breakouts using technical analysis indcators.

One aspect of forcasting crude oil prices is that crude oil tends to trend, making it very simple to trade profitably. For instance, crude oil has been in a regular uptrend, creating a postive slopped support trendline at points in July, late September, and primeval December. This is a valid and strong trenline which propose that crude will continue to rise.

Crude oil also tends to trade in channels and triangles. A break above or below these sample lines recommends a massive move is comming in crude. As of the writing of this article, crude oil recently crossed above its’ 200 day exponential moving average, as well as broke out of the topside of a symetrical continuation triangle. With tiny resistance overhead, it is fairly fair that crude oil will continue to rise from it’s current price of / barrel, to over per barrel.

As a technical trader, I generally don’t spend much time speaking about market fundamentals. However, there are some underlying forces that can never be ignored when doing market forecasts. Clearly the price of crude oil has had a profound effect on the stock market over the past 5 years.

You can clearly see that crude oil caused the markets to slow down, eventually creating the tell tale double top. Once crude crossed per barrel, the S&P 500 crashed through the 1400 support level, and the preceding bull market which lasted almost 6 years came to a screeching halt. Will it happen again? It’s fairly possible.