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Oil has again hit an intermediate top. Will oil go higher in the long-term? Yes. I'm a long-term oil bull. But are they done for now? Yes. Technically, and from a sentiment perspective, the future of crude oil prices should once again take a breather.

This chart shows the test of the highs on Friday, July 7, 06. But in true topping fashion, the price action rejected the new high and finished the day very weakly (a bar that is called a "key reversal").

click images to enlarge.
Oil Anwar 1

MACD (Moving Average Convergence Divergence) is a tool used to show price momentum (or the rate of change of prices). Here's how it works:

* When the MACD is moving up steeply, prices are accelerating quickly.

* When the MACD is moving down fast, prices are moving down at an accelerated pace.

The above chart illustrates that the price action is mismatched with momentum. Prices are making nominal new highs, while momentum is divergent from the levels of the old highs. This is a bearish sign for prices.

The chart below illustrates that there were only two significant breaks of the upper band in the last year. Both led to big price drops. The third break of the upper band is from Thursday and Friday of last week, adding to the case for a downward price move.

Oil Anwar 2

[Editor's note: Funds and ETFs covering the energy sector include IXC, IYE, OIH, PXE, PXJ, USO and XLE].

Source: Oil is Done for Now: A Technical Analysis