Here are 2 charts for oil prices 1. short term (daily chart) 2. long term (weekly chart)
Looking at the long term chart one wonders if subprime ever really was the real problem. Or was it oil high prices in an oil dependent economy ?? Note the nice tidy uptrend until oil reached the magic number of $80. At that point oil retreated to $50 and we had that magic period sept 2006-june 2007 where the DOW rocketed and anyone who couldn't make money doesn't deserve to be here. the chart formed a text book cup and handle. when oil reached $80 again on the top RHS of the cup is when "subprime" supposedly was the cause of all the market woes. When the C&H breakout was finished oil found itself at the top of it's old trading channel. (i just love how charting always seems to work out like that.) it then continued up it's old path for a couple of months but then in the last couple of months it has broken out into a much steeper shorter term channel (as seen in the first chart). for a short time, whilst still staying within the new channel oil found resistance at $126. It was when oil broke above this level the week before last we saw a nasty sell off in the markets which saw the DOW and the XAO break their 2 month uptrends. Last week oil fell back to the bottom of this new channel and has found support again around $126 whilst the markets have only recovered less than half the losses from the week before.
So what will happen now ?? i guess ultimately oil will collapse back to it's old trading channel. Chart patterns have a way of doing that. but what will it take to get it there ?? I think it will take another big bear market leg to bring it back into line. At the moment Oil prices are stronger than market indices. market indices have broken back into a downtrend where as oil has merely fallen to the bottom of it's trading channel. that happens. stuff drops to the bottom of it's trading channel then springs back to the top. i fear such a move in oil is the next thing on the cards. this may have a very nasty effect on markets.....but ultimately that may be what brings oil back to it's longer term channel.
