Brent bulls may get up off the mat, but bears still dominating
City Index December 21, 2015 7:45 PM
<p>It looks like traders may have dipped into the eggnog a little bit early, as markets have been extremely groggy so far today. Of course, […]</p>
It looks like traders may have dipped into the eggnog a little bit early, as markets have been extremely groggy so far today. Of course, this is historically one of the slowest weeks of the year as traders tend to focus more on last-minute holiday shopping and travel plans than the generally lackluster markets.
One of the markets that actually is showing a bit of volatility is oil, with the Brent crude contract dropping down to hit a fresh 11-year low near 36.00 this morning. Rather than any new data, the latest round of selling still stems from the ongoing supply-demand mismatch. On the supply side, US shale oil continues to flood the market and traders fear the influx of Iranian oil after sanctions are lifted next year. Meanwhile, the economic slowdown in China and Europe, as well as warm global temperatures as a result of climate change and a relatively warm El Niño conditions in the US, have reduced demand. This toxic one-two blow to oil bulls shows no sign of relenting and could be a major theme to watch in the first half of 2016.
Technical view: Brent
Turning our attention to the chart underscores the bearish outlook for Brent. After seeing a quick $3 rally early last week, the early gains evaporated by Friday and the contract has gone on to break last week’s 11-year low already today. A close near current market levels would mark the 10th bearish close in the last 12 days, so it’s not surprising that the lagging MACD indicator is showing strongly bearish momentum and the RSI indicator is in oversold territory.
Of course, there will be little in the way of market-moving releases over the next two weeks, so bearish traders may opt to book their profits ahead of the New Year, potentially leading to a brief bounce in Brent. That said, even a relatively big bounce would do little to damage the long-term bearish case; as long as Brent stays below key psychological resistance at $40 and key previous-support-turned-resistance at $42, sellers will remain in control.
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.