Chart Notes

The Decline of Crude Oil

December 30, 2014

We are relieved that we finally surrendered to the price action of Crude Oil on November 28, 2014 and now find ourselves up 46.54% on our SHORT trade; we regret that we surrendered to the price action 30 days too late. The gain on this trade would be double what it currently is if we had not taken it upon ourselves to try to “understand” what was happening with the price of Crude Oil. Lesson learned.

 There is a term in psychology called the Recency Effect in which we tend to weigh the latest data or events more heavily than data points from the past.

Because of the price action of the last six years it seems that the world had been lulled into believing that the ‘normal’ price range for Crude Oil was between $80 and $110. Anything outside of this range was considered to be abnormal.

We forgot that Crude Oil traded at $35.00 in 2009, and at $140.00 in 2008, and at $19.00 in 2001, and at $11.00 in 1998!

What we are witnessing today is some kind of paradigm shift in the way the world prices Crude Oil. In such times, traditional market analysis tools such as fundamental supply and demand data or technical support and resistance levels become useless.

From here Crude Oil could drop to $35.00 or it could hold at $55.00 and bounce back to $80.00. Nobody knows.

All we can do is follow the price action and act accordingly.