Is Oil Breakdown A Warning Signal?

In my previous post "Watch Support Levels On Oil", I sent out a word of caution with regards to some bothersome movements in crude oil. To reiterate, I wrote:
"We probably got a heads up with the initial weakness in crude oil, which started to manifest in mid-November (see chart below). It has broken through two minor support levels and will probably test a major support level in the form of a potential channel low at about $71.90 per barrel. This is also where the 130-day moving average stands. For me, my reversal signal for bull or bear markets is the 130-day moving average. For a bull market in oil to be sustainable, it has to stay above this level, so watch oil closely as this seems to be moving ahead of the stock market and gold."
To learn more about trading psychology, and how to use the various technical indicators, try a free e-mail trading course here.

Well, crude oil broke below that critical $71.90 per barrel level yesterday. The slow stochastics are oversold so we could have a short-term bounce, but the MACD has confirmed a breakdown by going below zero, which should limit any rally potential. Could this be a warning signal that other risk assets, namely global stocks and gold, will encounter a wider correction in the near future? Of the two, I'm more comforable going long with gold and am actually looking to buy on the dips as it has hit my support target of $1,123 to $1,127 per ounce. Check out my previous technical analysis of gold. For stocks, it's hard to say until we breakout or breakdown from the 1,084-1,120 range on the S&P 500.


Follow me on Twitter! If you liked this post, please retweet it!
FD: No personal position