Measuring the height of the double-bottom pattern gave an upside target near $61. This target was achieved but the pattern did not develop into a new sustained uptrend.
But the double-bottom near $45 is not a confirmed substantial support level and the current price retreat quickly moved below $45 towards the historical support level near $38. We use the ANTS analysis and trading method to capture both short-term and longer-term trading opportunities.
NYMEX oil trades in broad trading bands, with the trend behavior defined by these trading bands. The fall in oil from near $110 was very rapid with short-lived consolidation or pauses near each of the significant support or resistance levels.
The consolidation near $58 continued for 10 weeks and the failure of this long-term consolidation to provide a floor for a new uptrend is, as I said, very bearish.
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On the daily chart the Guppy Multiple Moving Average (GMMA) indicator shows that the short-term group of averages have moved quickly below the lower edge of the long-term group of moving averages. And there is a consistent degree of separation between the long-term GMMA and the short-term GMMA averages. This GMMA trend condition suggests a sustained downtrend move.
When the price reaches the historical support level near $38, traders and investors will look for the short term GMMA to develop "compression and rebound" behavior. This behavior will confirm the strength of support and is necessary for the development of any new uptrend.
Strong and fast downtrends normally do not quickly reverse direction so there is a high probability of a period of consolidation activity around $38. Investors and traders will then watch for the short term group of GMMA averages to compress and move towards the lower edge of the long-term group of GMMA averages. This will signal the beginning of consolidation behavior which may last many months.
Daryl Guppy is a trader and author of Trend Trading: The 36 Strategies of the Chinese for Financial Traders, available at www.guppytraders.com. He is a regular guest on CNBC Asia Squawk Box and a speaker at trading conferences in China, Asia, Australia and Europe.