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Crude Oil - At An Important Axis Price Line. Postured To Go.

Sunday  7 November 2010

 The weekly chart tells a potentially compelling story, and we present
it a few hours prior to the opening of the Sunday evening session, letting the chart speak for itself, before new information comes online.
The drawn axis line starts on the left side of the chart where there was
important support prior to the final swing high in 2008.  As always,
previous support, once broken, become future resistance, just as
previous resistance become future support.

 The importance of this axis line become apparent starting as early as
October 2008, when price failed to rally back above support the first
time it was broken.  A rally in late 2009 does not quite reach that line, 
and tries again a few months later, without success.  In April and May
of 2010, price finally reaches the axis line, hugs it a few weeks, and
then is rejected in early May with a wide range bar down that closes
poorly.

 Here we are in November, again mounting a challenge, for the fourth
time!*  There are a few pertinent observations to be made about the
intervening months' activity.  There was no downside follow-though to
May's price rejection.  In fact, price stopped at previous trading range
support from December 2009 and February 2010, as well as
additional support previously from July-September of 2009.

 The factual market activity observations become even more salient
since the 27 May week low at 67.15 We see two more swing low
corrections, and each correction has become weaker.  In fact, the
last swing low was more of a consolidation, a weaker form of a
correction, the four bars prior to the last one.  Our read of this
market activity is that the small ranges reflect the fact that sellers
could not press the market lower because buyers were absorbing all
the seller's efforts, and the culmination of that four week period gave
way to last week's strong rally.

 Weekly charts are a higher time frame than the daily and intra day
charts upon which most traders rely.  They carry greater significance
because they take more time and effort to move and change.  The
price momentum is clearly to the upside, and the chart, as we stated
from the outset, speaks for itself, with a little editorial help from us.

 *There is a general Rule Of Four that often works.  When price tests
a resistance area for the fourth time, it tends to break through.  We
are at the fourth attempt.  Whether this is already a breakout is still a
question.

 CLZ W 7 Nov 10

 The daily has already been addressed,
[See Crude Oil - Breakout Underway, third chart and discussion
above it, from 4 November].   You can see the consolidation,
mentioned re weekly, above, just prior to price rally strongly, all of
last week.  And the detail from the daily shows how the lows around
80 held at the previous swing high failed rally from September.  It
works consistently: previous resistance areas become support, and
vice versa.

 The stage is set, and we are long January and waiting for Act II.

CLZ D 7 Nov 10