Charting Asia

Technical analysis of Nymex crude chart shows oil prices haven't bottomed

History is repeating itself on Nymex, and although $10 oil looks a long shot, technical analysis indicates that prices have further to fall.

The weekly Nymex crude oil futures chart shows a repeat of the downtrend behavior that has characterized the oil price since the collapse began in 2014 September, with the fall below critical support at $38 a gap down from the previous weekly close of $39.94.

These dramatic gap-down moves have been a feature of the oil price collapse, and usually they signal a very fast fall to the next support level.

Meanwhile, the fall below $38 has invalidated the bullish consolidation pattern that appeared to develop from March to October. This pattern failed to develop.

Some analysts have suggested $10 is the downside target for oil. The charts suggest a fall to this price level is a low probability. But the fall below critical support near $38 does change the nature of the oil price behavior.

Oil shock? Firm tanks 36% amid latest rout

The first step to determine the downside target for oil is to apply the same trading band analysis methods that successfully set the downside targets when oil fell below $98. A $28 target is calculated by taking the width of the trading band and projecting it downwards below support near $38.

The trading bands for oil are about $10 wide. This analysis has been particularly useful for describing the rise and fall of oil between $38 and $108.

The second step is the consolidation the placement and location of trend line A. The rally and retreat in June, and again in October to November, provides several high points that are used to place trend line A.

This trend line will now act as an additional resistance level for any rally in oil prices, and is a significant new resistance feature on the Nymex oil chart. Any future uptrend reversal must be able to close above the value on trend line A on the weekly chart. It's a new, bearish feature that suggests the oil price will continue to fall. And we continue to use the ANTSYSS trade method to extract good returns from these falls.

What to expect from the energy sector in 2016: Pro

The third step is to understand that the behavior of the Nymex oil price below $38 is not the same as its behavior above $38; The trading band price projection analysis below $38 is not quite as reliable.

Historically, oil has a good support level near $29 and this is the preferred target for a retreat below $38.
So what happens if oil falls below $29?

To answer that, We need to look at the weekly chart from 1999 to 2003. The next lower, well-established support level is near $25.50, which was a long-term support level from December 1999 to May 2013. When oil fell below this support level in October 2001, it created the next support level near $18.00. There is no historical evidence for support near $10, although oil briefly touched this level in December 1998.

A continuing collapse the oil price has significant consequences for the oil exploration, production and distribution sectors. Oil companies have been slow to acknowledge the seriousness of the price slump but cannot claim surprise - these downside targets have been clear on the price chart for many months.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders, available at He is a regular guest on CNBCAsia Squawk Box and a speaker at trading conferences in China, Asia, Australia and Europe.