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Oil Prices Retreat From Resistance

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I was poking around some of the technical charts for the oil market and saw this pattern that I thought was interesting.

On this chart, I’ve drawn the retracement lines from the 2008 high to the low. The move up from the low has clearly stalled at the 38.2% retracement level and moved down. This is pretty classic action based upon Fibonacci analysis and oddly represents the psychological state of investors relative to the sentiment in the oil market.

Long time readers of this blog have seen the explanation of Fibonacci analysis, but for those that are new or that would like a refresher, you can follow this link (and check out a video from the 60’s by the First Edition – you might need to copy and paste the link into your browser):

http://investmentblog.bankchampaign.com/2009/11/march-to-the-50-retracement-continues/

Much of the recent downward pressure on oil has to do with the counter-trend rally in the dollar. This catalyst was enough to move sentiment into a more negative position and oil prices followed suit. The longer it takes to break through a resistance level, the more likely a move will be turned back. That is what happened with oil prices here – remember, technical analysis is simply a way to visually see the sentiment in the market, and in our case investor enthusiasm waned and was vulnerable to the move in the dollar.

I read earlier today that this is the anniversary of the death of Chief Sitting Bull, which put me in the mood for some music (but what doesn’t). Does anybody but me remember this group? Its strange how random events bring back snippets of musical memory, and you can then find them on the internet – maybe its here to stay.

Mark