Oil under 80?
The January Crude Oil contract has now ended its life and the February contract taken over. The contract did not manage to break the USD 100 mark and went into correction mode, a possibility we foresaw in November. Now that the February contract has taken over, one wonders what will be its first task. Will it try to take out the USD 100 mark or will it continue in a sideways movement? When looking at the chart, an interesting formation is taking place, in the form of a head and shoulders formation, a sign of a trend reversal or at least a correction.
The low point of the formation has formed at around 85.60 with the first low being around 88.46 in November. Depending 
on the timeframe, the confirmation price for the formation should be around 82 – 83 USD. The interesting thing is that this price range coincides with a resistance level around 82.97 – 86.06 USD, the resistance that supported the bull market on the 6 of December and set the second low in the potential head and shoulder formation.
If the price of Oil passes through the USD 82 in the next 14 – 15 trading days, we could be seeing lower prices. On the 13 of November we mentioned some price targets, namely 87.50, 80.35 and 75 USD. We believe that if Oil confirms the head and shoulder formation, these prices could well materialise at the beginning of next year. There will be resistance on the way, but the closest one is relatively weak, the one at the USD 80 level being a bit stronger and the one around the USD 75 level quite strong.
If Oil starts to pull back, why should it not pass the USD 75 level? Well it could, there is no rule that says it can’t. But the resistance at that level is quite strong and a break through the 70 – 75 level would mean that the oil bull had lost most of its strength, something that seems quite unlikely for the moment. Oil prices stayed close to the USD 70 level for a very long time and by doing so, formed an extremely strong resistance level.
But there are signs of weaker Oil prices, and even though the Oil only went down to around USD 75 within the next months, it would still be a big move compared to the prices we’ve seen the last months.
