Crude Oil - Ready to Boil?
- CA Rajiv D Khatlawala
- Aug 30, 2016
- 2 min read
Oftentimes in my trading seminars I reiterate the point that as a financial markets player and observer, one needs to keep a sharp eye on not only the ‘market’ you trade or invest in , but more importantly in other related markets to get a ‘feel’ of the bigger picture.
CRUDE OIL is one such market which, being highly volatile and crucial too, has the capacity to impact other markets. History suggest that recent volatility in crude oil prices has impacted not only financial markets but also the basic economics of many oil producing (and oil dependent) countries. We saw Crude oil being quoted at $100 , falling to $26 and back now to near $50 – all in a matter of 20 months! Surely this high volatility will leave its mark on the other markets too.
The prices of Crude oil seem to have become stable moving in a broad range of $40 and $50 for some time now. The panic low of $26 now seems to be a thing of the past and many market players are contemplating crude at $50 / $55 in coming months.
However to get a broader ‘bird’s eye’ view , an analyst needs to climb to a higher time frame and visualize the total scene of the price movements – only then a medium to long term trend identification can be attempted. With this is my mind, I thought of checking the weekly price chart of Crude and what do we visualize?
The weekly chart reveals a clear cut forming of a reversal pattern called ‘Inverted Head and Shoulder Pattern’ with neckline placed at $51 and the head (panic low) at $26.
The current price of $47 and thereabouts could be a consolidation and once we have the break out of $51, we can see the price of Crude oil rising nearer to $75- $78 in coming few months. And if this happens, one can imagine the impact it will have on the Indian stock markets, the fiscal deficit and the ‘oil bill’ impact on our currency INR. It is therefore important to watch out for any price action in Crude to know how we can re-align our stocks or currency exposures.
Unfortunately, the value addition by such inter-market analysis is overlooked, intentionally or otherwise, by most. But it may be highlighted that financial markets essentially follow the ‘butterfly effect’ – meaning that a small event somewhere or in some other market, can have a cascading impact on other market or markets.
And even before Crude starts boiling, one never knows what the possible US interest rate hike will do to our currency markets!
CA Rajiv D Khatlawala
Author, Consultant and Financial Trainer
Disclaimer: The views expressed here are the author’s personal views and should be used only for educative purposes. You may please take any investing decision based on your own best judgment. The author cannot take any responsibility for investing decisions taken by anyone based on this article.
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