Light Crude on brink of significant rally

Recent months have seen a sharp fall in Light Crude prices, but long-term charts suggest the bears may have run their course and a rebound may unfold, according to Karman Sheikh, Technical Strategist at Informa Global Markets.

Sheikh points out that on 1 December the fall was halted almost exactly at the 16 year bull trendline (at 63.72). He says the importance of this level is further enhanced by the presence of two significant long-term retracement levels: A 61.8% of the 1998-2008 rise (10.35 to 147.27) and a 61.8% of the 2008-2011 rise (32.40 to 114.83), both of which are sited in close proximity to 63.72.

Cyclical analysis also strengthens this notion, says Sheikh. A number of Light Crude rallies have started in mid-Winter (as shown by ovals on the chart). Thus, Sheikh looks for a rally in the coming weeks/months, driving the Light Crude price back towards 91.24, and possibly 107.68.

Only a decisive and sustained breach of the 63.72 to 62.65 area would defer his expectation of a rally and risk a test of 58.32.

See chart for NYMEX Light Crude.