SINGAPORE: US oil may test support at $50.30 per barrel over the next three months, with a good chance of breaking below this level and falling further towards $36.74.
Oil is riding on a powerful wave C which started at the June 20 high of $107.73. It has a fierce character, which has been proved by the sharp fall over the past few months.
This wave extends a three-wave cycle that developed from the July 2008 high of $147.27.
Based on the length of the first wave labeled A that ended at the December 2008 low of $32.40, a Fibonacci projection analysis on the target of the wave C reveals a range of $19.97-$36.74, formed by the 76.4 percent and the 61.8 percent levels.
The wave C has traveled below support at $63.85, the 38.2 percent level, which has become a strong resistance and may limit any further rebound.
A closer look at the structure of the wave C on the daily chart strongly indicates the low touched on Dec. 16 at $53.60 is highly unlikely to be an ultimate bottom.
The low is very close to support at $53.69, the 238 percent Fibonacci projection level of a downward wave III. As the third wave of the wave C, this wave III could be further divided into many small waves, one of which is the wave iv, which is the driver of the current weak rebound from $53.60.
Most likely, this wave iv will end around $60.30, the 200 percent level, from which, the downtrend resumes.
A break below $53.69 will confirm the continuation of the downtrend towards the next immediate support at $49.61. A break above $60.30 will open the way towards $62.65, the 186.4 percent level.
No information in this analysis should be considered as being business, financial or legal advice. Each reader should consult his or her own professional or other advisers for business, financial or legal advice regarding the products mentioned in the analyses.
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