It is sometimes wonderful to see that even if one is not completely aware of the fundamental inputs; market participants know it all and it all gets discounted in price. In other words, charts say it all: the fundamental picture, the psychology and the consensus of market participants.
Once such good example playing now is on the charts of Brent crude. The accompanying picture shows how the total oil inventories of the OECD countries peaked in 2016 and after that it shows how it has consistently dropped ever since.
When compared with their five-year averages, OECD stocks are seen reducing consistently and they are very near to getting into the negative zone.
One would not require Einstein’s brain to understand that the glut of stored oil among industrialised economies – which helped keep prices low for years – has shrunk after production cuts by Opec and Russia.
This has not only set prices higher, but is likely to push it higher significantly over the coming weeks. This gets wonderfully reflected on the technical charts.
The weekly technical charts of Brent crude shows how it wonderfully corroborates the picture and reflects it all.
The above chart gives several indications that point towards an upward move in Brent crude prices over the coming weeks.
- A Golden Cross is seen with 50-period moving average, crossing the 200-period moving average from below. This often signals initiation of a prolonged upward move in prices
- After good accumulation, a big white candle appearing near the 20-period moving average points towards an attempt for a fresh breakout
- On balance volume or OBV is moving towards a fresh spike as the prices consolidate
This shows inherent buoyancy.
- Prices ended above their upper Bollinger band. Though some temporary retracements inside the bands may be seen, this point towards likely initiation of a fresh spike in prices.
It would be no surprise if we see crude prices move higher over the coming weeks.
(Milan Vaishnav, CMT, MSTA is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at [email protected])