Oil prices: bottomed out or oil prices heading lower

oil price outlook for 2016

This is what we stated to our subscribers back in January 2016.

After trading as low as $27.56 oil reversed course and headed higher, it is now in a transition phase; moving from a down trending phase to a bottoming phase.  Oil did not close below $30 on a monthly basis, so the outlook has not changed.  The current bottom has all the signs of a fake bottom, meaning that it is probably a setup for the early bulls.  Oil is likely to test its lows once again before a bottom takes hold.  A bottom could take hold in the month of February.  Oil, however, cannot close below $30 on a monthly basis, if it does, then the bottoming process could be delayed. Market Update Jan 31, 2016

As expected oil went to trade to new lows before bottoming out.   Oil should not close below $30.00 on a monthly basis to indicate a tradable bottom is in place. In all the charts we are going to post below, you will see that 30.00 represents an important price point and this is why oil should not close below this level on a monthly basis, as former support will turn into resistance.

We are going to look at oil prices in several time frames, five-month, 1 year and 5 years

oil price 5 month chart 2016

We can clearly see on the 5-month chart that oil should not close below 30.00 on a monthly basis. In the short time frames, oil is slightly overbought so after a possible test of the 35.00 ranges, oil could drop down test its lows again before trending higher.  This sudden reversal is a set up to knock the early bulls out and full the bears that the market is going to crash.

Oil prices one year chart

Oil prices: bottomed out or oil prices heading lower

Key price points to focus on the one year chart.  A weekly close above 35.00 will lead to a fast move to the 40.50-42.00 ranges, before pulling back.

Oil Prices five-year chart

oil prices 5 year chart 2016

What oil needs to do is trade at or above current support and challenge former resistance levels.  Oil prices move to new lows suggests that Oil will most likely test these lows again. However, the focus should no be on oil dropping to new lows but on oil not closing below $30.00 on a monthly level. As long as it can hold above this important price point on a monthly basis, the outlook will favour a slow move up to higher prices.

Key price levels for the 5-year chart

Oil must hold above $30.00 on a monthly basis.

To indicate a move to move to the 50 plus ranges, oil would need to close above 45.00 on a weekly basis.  

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