Has crude oil found its bottom?

The 58 per cent plunge in crude oil price from $107 a barrel in June last year to $45 levels early this year has been making headlines for sometime now. But the quite recovery has not attracted as much attention.

The West Texas Intermediate (WTI) crude oil, one of the global benchmark price and also the underlying commodity for the futures contract traded on the New York Mercantile Exchange (NYMEX), has rallied some 33 per cent from its March low of $42 to around $56 now.

Does this rally imply that crude oil has found its bottom and a reversal is underway? Though over supply and weak global demand indicate further pressure on crude oil price, charts have a different tale to tell.

Here are inferences from the charts of the NYMEX crude oil futures that signal a trend reversal.

Comparing two periods Crude oil last saw a turbulent time during the US financial crisis of 2008.

There is some similarity in the recent and earlier fall; crude price began its fall after peaking in June and then bottomed out in January and February of the following year.

In 2008, NYMEX crude oil price peaked at around $147 in June and tanked over 77 per cent to bottom out near $33 levels in January and February 2009.

The current fall, which was set in motion, from the June 2014 peak of $107, has found a strong support near $45 levels between January and March .

Two, $45 has emerged as a strong support level. Crude oil has not recorded a weekly close below this level since January, implying fresh buying interest on dips to $45. Finally, there is a strong long-term trend line support around $43 which is holding very well.

Reversal Patterns Two reversal patterns are also clearly visible on the charts. On the weekly line chart, there is a double bottom.

On the daily line chart there is a “confirmed” inverted head and shoulder reversal pattern. The neckline support of this pattern is around $51.

This support held well last week when prices reversed lower from $54 levels. Crude only briefly dipped below $51 and bounced back sharply to $56.

Where is it headed? If the above mentioned patterns and indicators are proved right, then crude oil prices are more likely to have found their bottom. In such a scenario, $53 and $50 are the crucial support levels to watch.

The outlook will be bullish as long as it trades above these levels. Targets of $59, $62 and $67 are clearly visible on the charts.

However, this rally could take some time to unravel; revisiting $100 levels will take longer. It took more than two years for crude oil to claw back to $100 levels during the 2008-2009 fall.

Crude price, thus having found a bottom, could now rise slowly and steadily in the months to come.

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