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Oil slips into downtrend amid US exports expectations

Starting in the 1970's the U.S. government prohibited the export of its oil. However, U.S. shale oil reserves have since changed the structure of the oil market and now there is talk that the export ban may be lifted.

The export of U.S. shale oil would change the pricing structure of oil. Investors' expectations for how price activity would develop if the export ban is lifted are already reflected in the weekly NYMEX oil chart.

(Read more: Energy industry voices decry move to export US oil)

NYMEX oil has developed a downtrend with a retreat from the upper resistance level near $110 starting in September, 2013. The weekly NYMEX oil chart shows an uptrend starting in June, 2012 shown on the chart by trend line A. The recent fall below trend line A has confirmed new downtrend pressure.

The weekly NYMEX oil chart shows four levels of support and resistance near $78, $88, $98 and $109. Starting in July, 2012 oil has traded in a sideways band between $88 and $98. The breakout above this trading band in July, 2013 was not the start of a new uptrend, but rather a temporary rally towards resistance near $109.

Trend line A starts in June, 2012 from the low near $78, the best placement of which starts near $81. This trend line connects the lows in November and December of 2012, as well as the April, 2013 low, providing three anchor points for the uptrend line. The trend line was successfully tested again as a support level in November, 2013.

(Read more: Shell shock: Oil giant warns of 'significantly lower' profit)

Andrew Burton | Getty Images

The fall below the trend line A in January, 2014 confirms a downtrend and a move towards lower support levels. The first support level is near $88. The trading band between $88 and $98 has defined most of the trading activity between July, 2012 and June, 2013, thus there is a high probability that oil will develop a new pattern of sideways trading between $88 and $98.

In the short term, the value of trend line A will now act as a resistance level for any rally, a retreat away from which confirms $88 as a price target. A fall below $88 support would set a new downside target at historical support near $78.

(Read more: Obama's manufacturing revival: Is the gas missing?)

Disclosure: The writer holds an open position in the S&P Asia 50 Exchange Traded Fund.Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders – www.guppytraders.com. He is a regular guest on CNBCAsia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe.

  • Daryl Guppy is an independent technical analyst who appears frequently on CNBC Asia.

Asia Economy