Has Crude Oil Made an Interim High?

The importance of this question extends well beyond the energy sector.

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Jun 20, 2022 | 09:00 AM EDT

Stocks quotes in this article: XLE, OIH

Everyone is watching the price of crude oil. Everyone is sensitive to the latest price at the pump. Housewives, truckers, CEOs and even me. Everyone.

This issue is a global phenomenon and if crude oil prices weaken a bit it should have a positive effect on stock prices.

On Thursday on Real Money we wrote about price weakness in two widely followed energy ETFs – the Energy Select Sector SPDR Fund (XLE) and the VanEck Oil Services ETF (OIH) .

Let’s drill down on the charts and indicators of that black gold — crude oil.

In this daily Point and Figure chart of the Crude oil futures contract. We can see a downside price target in the $99 area. A close below $100 will get a positive spin by all the commentators on the financial shows, etc.

In this weekly Japanese candlestick chart of Crude Oil, below, we can see that prices have struggled above $120 or the area of the upper shadow in March. The weekly OBV line is struggling to push higher and the 12-week price momentum study has been weakening.

In the monthly Japanese candlestick chart of Crude Oil, below, we can see some interesting clues. Notice the doji pattern at the low in early 2020? Notice the djoi at the top of the market now? The latest doji comes after seven record highs. Not quite 8 to 10 record highs but I am not going to ignore this potential signal.

The monthly OBV line is pointed up but the 12-month price momentum study shows us a bearish divergence when compared to the price movement.

And we cannot talk about crude oil without mentioning natural gas. In this weekly Japanese candlestick chart of Natural Gas futures, below, we can see some wide ranges and a big bearish engulfing pattern.

Bottom-line strategy

If crude oil is indeed making an interim high and can weaken for several weeks we should have a potential reason for equities to rally if traders perceive that inflation could moderate. Longer-term I expect higher energy prices but a pull back now in energy prices and a rally in stocks will be a welcomed relief for several weeks.

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