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Trends and Targets for 26/01/2016

Created 25/01/2016 at 22:15

BRENT CRUDE (NYMEX:BZ)  We're going to spend this week looking at major commodity prices. Brent remains in a death spiral despite it already hitting (and breaking intraday) our historical 28USD target. Currently the stuff needs better 34.594 USD, simply to escape the immediate ruling downtrend since October last year and recently something has happened to the price which bothers us. Essentially, the product has suffered one of these GaGa things, in this instance Gapped DOWN below a trend then Gapped UP above it. This nerdy thing, when experienced against shares, has tended signal a period of artificial movement and we rather suspect BRENT is about to display similar ridiculous behaviour.

To be plain, despite a pretend argument suggesting the product should now bounce to 35.16 USD, the GaGa thing makes it unlikely as this would both better the ruling downtrend AND suggest the price of crude is actually recovering. We are perfectly aware most sane people will take our movement theory with a pinch of salt but experience of this relatively new market ploy has tended make it one of the more safe indications. Essentially, our argument boils down to - we've spotted a high level of price control and we think we know their end game!

Our belief is the price intends yet another visit to the 28 USD level. It needs better 32.67 to caboosh the immediate argument generated by moves this year but there's a problem we need address due to the recent drop actually getting below our target. From our stance, it implies weakness is still present and a further break of 28 USD risks taking the price down further to around 25.2 USD. While visually, such a calculation looks silly, BRENT has proved pretty firmly that the price isn't part of a protected species.

Of course, our miserable outlook remains only needing 34.594 to escape the big picture downtrend and should this occur, 35.16 makes a pretty sensible initial 'breakout' target. Our longer term secondary (ie, the next day / week / hour - our grasp of timeframes stinks) is at 42.62 USD. This would signal a challenge of the downtrend since 2014 and thus, makes some sense.

We're fond of giving "Ultimate Bottom" numbers and now, with BRENT, this generates at 15 USD. Apparently, if the product were to leak below such a level, petrol stations will be PAYING US to fill up our tanks. There's little doubt BRENT is confusing and in summary, we expect it to essentially become rangebound in the high 20's, low 30's, until such time world event conspire to drive movements. Historically the price has been able to effectively flatten as 2011 through to 2014 shows.

Finally, for another giggle, we looked at a particular movement against BRENT in the run up to the 2014 Scottish Referendum vote. As with GBPUSD, BRENT appeared make an irrational movement which was probably inspired by the "Project Fear" political intimidation campaign. The circled area highlights, the price was moved below RED, starting an entirely new trend!  Hopefully in the build up to the EUROPEAN vote, politicians don't start messing around with the price of Wine or French Fries to illustrate what could happen if the UK votes to exit. Now THAT would bother us!

Click here for Article on Brent from 2014 where we first gave criteria for below 30 USD a barrel.



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