Oil in Downtrend, May Fall to $50: Technical Analysis

(Bloomberg) -- Crude oil is in a downtrend that may lead to prices falling as low as $50 a barrel, according to Schork Group Inc. “Oil has indeed entered a bear channel,” said Stephen Schork, president of the Villanova, Pennsylvania-based consultant. “The market gapped lower, therefore that gap - in between $66.26 and $65.65 - is now the top of resistance.”A decline of 12 percent since the start of last week has pushed prices into a descending channel on the daily continuation chart. It has also left a price gap between the low of July 2 and the high of July 6 that will present a hurdle to rising prices in the coming week, Schork said.

Oil reached an eight-month high of $73.38 a barrel on June 30 on speculation a recovery from the global recession will spur demand for fuels, and following a surge in Brent on London’s ICE Futures Europe exchange. Unauthorized trades at PVM Oil Futures Ltd., a unit of the world’s largest broker of over-the-counter oil derivatives, may have caused London oil prices to jump in the early hours of June 30, according to exchange data.New York oil futures have since fallen, into a sustained descending channel. Prices are headed for a sixth day of decline after closing yesterday below the 50-day moving average for the first time in four months.

Crude oil on the New York Mercantile Exchange is in its longest losing streak since December. Oil for August delivery declined 74 cents to $62.19 a barrel at 1:14 p.m. Singapore time. Prices rose 41 percent in the three months to June, the biggest quarterly gain since 1990, and increased 39 percent so far this year.Oil may fall to $50 a barrel only after breaking support levels near $60, according to Schork.
“The market is clearly trending lower,” he said. The support is in between the 50 percent and 62 percent retracements ratio scale, from $61.25 to $58.59, he said.