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Crude Oil Price Forecast - Trend Breaks Downward – Rejecting The $120 Level

Commodities / Crude Oil Jun 25, 2022 - 10:34 PM GMT

By: Chris_Vermeulen

Commodities

The recent downward Crude Oil trend may have caught many traders by surprise. Just before the US Fed raised interest rates on June 15, 2022, Crude oil was trading above $120ppb. Less than 5 days later, it collapsed -12% and has continued to trend lower. Currently, Crude Oil is near -17% lower than recent highs.

It appears Crude Oil has confirmed resistance near $120 and is devaluing as consumers pull away from traditional driving/spending habits while the Fed aggressively attempts to burst the inflation bubble. This type of contraction in Crude Oil is very similar to what happened in 2008-09 when the Global Financial Crisis (GFC) hit – Crude Oil collapsed more than -70% after IYC started trending lower in 2007.


Consumer Discretionary Spending May Be Leading Crude Oil Downward

On June 9, 2022, I published a research article (CRUDE OIL PRICE AND CONSUMER SPENDING – HOW THEY ARE RELATED) highlighting the correlation between Crude Oil and the Consumer Discretionary ETF (IYC). In this article, I suggested any breakdown in IYC, below $60, may prompt a broad downward price trend in Crude Oil – possibly targeting the $75 to $85 price level.

Looking at this chart from our June 9, 2022 article, we can see IYC has already fallen more than -34% from recent highs. In 2007, peak oil prices were reached well before IYC declined more than -22%. So, in this case, the recent decline in IYC may already be predicting a downward price trend in Crude Oil – possibly targeting levels below $80 eventually.

(Our Crude Oil/IYC Chart from the June 9, 2022 article)

Aggressive Fed Action May Prompt Extreme Consumer Actions

In an oddly similar way, the 2008-09 GFC represented an extreme excess/speculative phase in the US Credit/Housing markets. Today, we see many similar facets after the COVID-19 event – where house prices skyrocketed from +25% to +45% in some areas. Additionally, prior to 2007-08, we saw moderately high inflation levels, Crude Oil was trading above $100 ppb, certain commodities were in very high demand, and consumers were spending aggressively on almost everything.

Today, we see a combination of some factors from the GFC as well as the DOT COM bubbles. Not only have house prices and raw commodities seen incredible rallies over the past 5+ years, but the Technology and Innovation sectors have also been leading market gains as well. Bitcoin rallied from under $1000 to a high of nearly $70,000 over the past 5+ years. The excessive speculation in the global markets recently is clearly evident in many various sectors and assets.

Global Central Banks Are Running The Show (Again)

I believe the US Federal Reserve will continue to raise rates aggressively in an attempt to tame inflationary trends. At the same time, we are likely to see many Global Central banks attempt to follow the US Fed in raising rates. This creates an economic environment many traders are unprepared for – an extended stagflation/recession period.

The downward trend in Crude Oil and IYC may be the “canary” for the global economy and what to expect going forward. When consumers pull away from traditional pending habits, we are likely to see a broad contraction in global GDP and other economic factors.

Traders and investors need to stay cautious of various global market trends and move back towards a more traditional method of managing their capital. The global markets are still 3x to 5x more volatile than at any time in recent history. Any aggressive trading style could lead to massive losses – as we are likely to see in many global Hedge Funds and managed accounts.

LEARN FROM OUR TEAM OF SEASONED TRADERS

With the market environment and crude oil trend, it’s imperative to assess our trading plans, portfolio holdings, and cash reserves. As professional technical traders, we always follow price. At first glance, this seems very straightforward and simple. But emotions can interfere with a trader’s success when they buck the trend (price). Remember, our ego aside, protecting our hard-earned capital is essential to our survival and success.

Successfully managing our drawdowns ensures our trading success. The larger the loss, the more difficult it will be to make up. Consider the following:

  • A loss of 10% requires an 11% gain to recover.
  • A 50% loss requires a 100% gain to recover.
  • A 60% loss requires an even more daunting 150% gain to simply break even.

Recovery time also varies significantly depending upon the magnitude of the drawdown:

  • A 10% drawdown can typically be recovered in weeks to a few months.
  • A 50% drawdown may take many years to recover.

Depending on a trader’s age, they may not have the time to wait nor the patience for a market recovery. Successful traders know it’s critical to keep drawdowns with reason, as most have learned this principle the hard way.

HOW WE CAN HELP YOU LEARN TO INVEST CONSERVATIVELY

At TheTechnicalTraders.com, my team and I can do these things:

  • Safely navigate the commodity and crude oil trend.
  • Reduce your FOMO and manage your emotions.
  • Have proven trading strategies for bull and bear markets.
  • Provide quality trades for investing conservatively.
  • Tell you when to take profits and exit trades.
  • Save you time with our research.
  • Proved above-average returns/growth over the long run.
  • Have consistent growth with low volatility/risks.
  • Make trading and investing safer, more profitable, and educational.

Sign up for my free trading newsletter so you don’t miss the next opportunity!

We invite you to join our group of active traders who invest conservatively together. They learn and profit from our three ETF Technical Trading Strategies which include a real estate ETF. We can help you protect and grow your wealth in any type of market condition. Click the following link to learn more: TheTechnicalTraders.com.

Chris Vermeulen
www.TheTechnicalTraders.com

Chris Vermeulen has been involved in the markets since 1997 and is the founder of Technical Traders Ltd. He is an internationally recognized technical analyst, trader, and is the author of the book: 7 Steps to Win With Logic

Through years of research, trading and helping individual traders around the world. He learned that many traders have great trading ideas, but they lack one thing, they struggle to execute trades in a systematic way for consistent results. Chris helps educate traders with a three-hour video course that can change your trading results for the better.

His mission is to help his clients boost their trading performance while reducing market exposure and portfolio volatility.

He is a regular speaker on HoweStreet.com, and the FinancialSurvivorNetwork radio shows. Chris was also featured on the cover of AmalgaTrader Magazine, and contributes articles to several leading financial hubs like MarketOracle.co.uk

Disclaimer: Nothing in this report should be construed as a solicitation to buy or sell any securities mentioned. Technical Traders Ltd., its owners and the author of this report are not registered broker-dealers or financial advisors. Before investing in any securities, you should consult with your financial advisor and a registered broker-dealer. Never make an investment based solely on what you read in an online or printed report, including this report, especially if the investment involves a small, thinly-traded company that isn’t well known. Technical Traders Ltd. and the author of this report has been paid by Cardiff Energy Corp. In addition, the author owns shares of Cardiff Energy Corp. and would also benefit from volume and price appreciation of its stock. The information provided here within should not be construed as a financial analysis but rather as an advertisement. The author’s views and opinions regarding the companies featured in reports are his own views and are based on information that he has researched independently and has received, which the author assumes to be reliable. Technical Traders Ltd. and the author of this report do not guarantee the accuracy, completeness, or usefulness of any content of this report, nor its fitness for any particular purpose. Lastly, the author does not guarantee that any of the companies mentioned in the reports will perform as expected, and any comparisons made to other companies may not be valid or come into effect.

Chris Vermeulen Archive

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