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October analysis of Crude proved true: the power of technical analysis

NEW YORK - World oil prices are on the brink of sliding another $10 or more, according to chart analysts who say the over 20 percent drop since June has wiped out key support levels and left behind a “technical graveyard”.
On Friday, Brent crude dropped to its lowest level in nearly four years before ending near flat at $90.21 a barrel. A combination of unrelenting supply from the U.S. shale oil boom and disappointing demand from Europe and China has walloped markets, with Saudi Arabia reluctant to curtain output.
According to analysts who use historical chart patterns to anticipate price movements, the worst may not be over.
On a weekly chart, Brent futures had earlier closed in on $88.49 a barrel - the pivot support level representing a 76.4 percent Fibonacci retracement of their most recent high and low from February to June of 2012.
“If we get a weekly close below $88.49, it’s a very bearish indicator that will likely signal the acceleration of the downward trend,” said Jay Bishen, analyst at CitiFX, Citigroup’s technical research team in New York.
A weekly close below the level suggests Brent crude could fall much further to the lows reached in February and May of 2010, near $68 a barrel, he said.
Oliver Sloup, director of managed futures at iiTrader in Chicago, said the chart for U.S. crude oil futures was a “technical graveyard” after their rout sent prices crashing below all major moving averages in the last three months, making
Fibonacci numbers the next best indicators.
U.S. crude futures closed at $85.82 on Friday.
“The next critical support for WTI is $76, the full retracement from the highs and lows of 2010. It’s a big level that a lot of traders and algorithms are looking at,” he said.
Bishen said a bearish head-and-shoulder pattern that started in July 2012 indicates a downward move toward the $75-$77 range is possible.
Fibonacci numbers are a common technical tool used to predict the relationship between percentage changes and a sequence of important numbers.
“There is an old saying: The trend is your friend. There is no reason to try to pick a bottom here,” Sloup said. “We see short covering today but that happens in a bear market, and the downward trend is likely to continue.”
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